A special report issued today from Deutsche Bank Research supports a house view that the US economy has shifted in light of political developments in Washington in recent months. Passage of legislation entailing a substantial tax cut and significant fiscal stimulus now seems much less likely than it did in the wake of the US election results late last year. Accordingly, Deutsche Bank Economists Peter Hooper, Joe LaVorgna, Matthew Luzzetti, Brett Ryan and Torsten Slok have marked down their forecast for US growth this year by a couple tenths and for 2018 by a full percentage point.
This revision leaves the bank’s forecast somewhat above consensus at 2-1/2% for this year and about in line with consensus at 2-1/4% for next year. According to the report, animal spirits in the business sector having been lifted enough by easing of the regulatory by stronger capex and supported by solid consumer fundamentals.
Despite the markdown in the growth forecast, the outlook for unemployment, inflation, and the Fed has moved in a slightly more hawkish direction.