Fidelity’s Stupnytska: ‘Fed’s hike in June likely to be the last for 2017’

Stupnytska-Anna

Fidelity International’s global economist Anna Stupnytska says the anticipated US rate rise this week will probably be the last this year.

The Federal Open Market Committee meeting takes place on 14 June.

Stupnytska says sluggish wage growth is dragging on consumer growth with the uptick in investment failing to counter the effect, while the outlook for inflation is modest.

She says: “I believe the Fed’s hike in June is likely to be the last rate rise for 2017. Easy financial conditions have emboldened the Fed this year, but the economy has clearly not played ball. Weakness in consumption is becoming more visible due to emerging headwinds from negative wage growth in real terms, combined with falling housing affordability and tighter credit standards. And while investment is finally picking up after being a drag on growth for many quarters, it has yet to offset the flagging consumer.”

“At the same time, the inflation outlook remains anaemic with commodity prices rises dropping out of the equation. While core inflation is set for modest acceleration in coming months, it is unlikely to cause any concern at the Fed.

However Stupnytska adds that Trump’s proposed fiscal stimulus could see the Fed turn more hawkish next year.

“It’s hard to see what can catalyse a substantial rebound of US growth from its modest level at present. Given the high degree of uncertainty around Trump’s domestic agenda, the prospects for tax reform and infrastructure spending have faded for now – in any case a growth boost from Trump’s fiscal stimulus was never a story for this year, in my view. It might be a factor for 2018 but if this results in higher inflation, the Fed might lose the luxury of being dovish, potentially bringing the current expansion to an end sooner.”