Where the United States economy is heading

WASHINGTON – BBVA Banking Group says incoming data reaffirms its baseline scenario of moderate to high GDP growth and higher inflation for the United States in 2018 & 2019, with the U.S. Federal Reserve poised to raise rates twice in the second half of 2018 and possibly three times in 2019.

“We continue to expect above-average growth in employment,  which will push the unemployment rate to 3.6% by 2019,” BBVA says.

“With additional tailwinds from expansionary fiscal policy, we expect core PCE to rise to 2.3% in 2019 before returning to 2% in 2021.

“ Despite some idiosyncratic issues with short-term rates and the Fed funds target range, we continue to expect a gradual rise in short-term rates.”

BBVA says demand-side conditions are sufficient enough to offset rising issuance, which will continue to compress term-premium keeping long-term rates low. BBVA’s baseline continues to assume 10-year terms at 3.1% by year-end.   www.bbvaresearch@bbva.com  (ATI).