Macro outlook
Fed remains cautious
The Fed is likely, however, to proceed in slow and small steps. Inflation remains at a
very low level so that inflationary risks are limited. Low commodity prices also help
to keep inflation at bay. We expect the federal funds rate to increase in several steps
to 0.75-1.00% by September 2016 - a level which would still be well below our 2016
inflation-rate expectation of 1.6%.' An additional argument against a larger interest-rate
rise is provided by the Fed's fears about the implications of a stronger U.S. dollar, which
would hamper U.S. exports.
Continued negative rea€ official rates are a clear indication of a rupture in the growth
trend in the United States and other industrial economies in 2008. The U.S. economy
is growing by less than its potential - creating a so-called output gap - but at least it
has found its way back to positive growth. The Eurozone and Japan, in contrast, have
only just recovered to the economic output levels achieved before the crisis. A trend
which had already started in the run-up to the crisis has therefore been continued and
confirmed: an increasing growth differential between the United States on the one side
and the Eurozone and Japan on the other.
1100 s, UMW U. 1200P piny lev••1 Growth gap
10:0
The U.S. economy returned to a solid
15:30 growth path after the financial crisis.
However, the output gap, which had
1400 widened during the financial crisis,
could not be completely closed.
1200 • Figal U S oer.
• Pelmbal U.S. GDP
1100
1010
1996 19W 1&90 2001 2r.,03 2V..6 2007 20.3 2011 2013 2015
Sant.s Thomson Rt.,-; DVOUrelfil. Feie i149?M1*. Of • SP.otembe4 2015
Lower growth in the Eurozone than in the United States is the result of austerity
measures taken in the last few years. Periphery countries have had to cut their public
spending and their budget deficits. This has resulted in weak demand, slowing down
growth all over the Eurozone. But the negative effect from this is now fading. Positive
effects such as falling levels of unemployment since 2012, moderately rising wages
and the depreciation of the euro are starting to play a more significant role. Consumer
expenditure and export revenues are therefore set to rise moderately.
' Deutsche AWM forecast as of 9/21/16
Past performance is not indicative of future returns. No assurance can be given that any forecast, investment objectives and/or
expected returns will be achieved. Allocations are subject to change without notice. Forecasts are based on assumptions, estimates,
opinions and hypothetical models that may prove to be incorrect.
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