The Fed hiked rates by 0.25% in March, stating that the economic outlook has strengthened. The labor market has continued to improve and economic activity has been rising at a moderate rate. The median dot plot1 projection signals two additional rate hikes in 2018. Fiscal stimulus from tax reform and increased budget spending expanded the Fed’s real GDP growth outlook to 2.7% for calendar year 2018.
President Trump announced tariffs on steel (25%) and aluminum (10%), and engaged in trade rhetoric sparking fears of a potential trade war. Trump signaled an intent to level tariffs on $50 billion worth of Chinese imports as a means to reduce the trade deficit and combat the treatment of U.S. firms’ intellectual property.
Amidst this backdrop, the 10-year Treasury yield declined while short term rates increased, causing further flattening of the yield curve.
