GDP growth appears to have slowed slightly, to between 1.5% and 2.0% annualised in the fourth quarter, but the more stable global backdrop and the lagged impact of this year’s loosening in financial conditions should drive a gradual recovery from mid-2020 onwards. The plunge in mortgage rates is already supporting stronger housing activity, with residential investment rebounding in the third quarter and housing starts continuing to trend higher. That boost should soon feed through to other rate-sensitive sectors like durables consumption and, with trade uncertainty starting to ease, we expect lower corporate bond yields to eventually drive a recovery in business investment too. With inflation likely to remain subdued, we think the Fed will reinforce that supportive backdrop by keeping interest rates on hold for at least the next couple of years.
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