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United States

Report | Stepping on the gas… too much? for February 14, 2018


​Economic growth should accelerate in 2018, fueled by both the tax cuts enacted in late 2017 and the increased government spending that was approved just last week. But this type of late-cycle fiscal stimulus has never really been tried before and it risks overheating an economy that by most measures was not in need of a boost. That labor market remains strong with wage growth accelerating toward 3 percent while inflation appears as if it has overcome the temporary factors that held it in check in the first half of 2017. Stimulating the economy will likely accelerate both metrics. That will increase the chance that interest rates across the yield curve rise faster than they would without the stimulus. And increasing yields over time will become a drag on the economy and the CRE market. The probability of a recession remains low in 2018 and into the first half of 2019. But by the latter stages of 2019 the economy could be faced with slowing growth and significantly higher interest rates, a recipe that has produced recessions in the past. ​

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