With the economy set to receive an additional fiscal boost following the recent deal in Congress to raise the discretionary spending caps, we are revising up our GDP growth forecasts for both this year and next. We now expect GDP growth to be 2.8% this year, up from 2.5%, and 2.0% in 2019, up from 1.7%. Furthermore, in addition to the four rate hikes for this year that we have long expected, we now anticipate that slightly stronger growth profile will prompt the Fed to hike rates twice in the first half of 2019. (We previously had only one hike factored in for next year.) That means the fed funds rate would peak at between 2.75% and 3.00% in mid-2019.
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