Chart 11: Dollar strength leads to immediate trade drag (inverse Chart 12: Expected path of fed hiking cycle (bp) relationship) EEE Contribution of net exports to real GDP (lhs, pp) veo —— Current market pricing =———=Real trade weighted USD, QoQ (rhs, % yoy) 160 == Median dot, Sep-16 SEP 15 6% 140 ——— BofAML forecast ! o 8 0.5 80 0.0 am 60 40 -1.0 0 45 2% 0 4 8 12 16 20 24 # of meetings into tightening cycle -2.0 4% Q2-2013 Q1-2014 Q4-2014 Q3-2015 Q2-2016 Source: BofA Merrill Lynch Global Research, Federal Reserve, Bloomberg Source: Federal Reserve Board, Bureau of Economic Analysis Nevertheless it is not our central scenario in part because there is a risk that much of a Trump surge could be bad for growth. As we noted above the fiscal stimulus is likely to be back loaded as far as 2017 is concerned. In the meantime the FX and Rates teams predict an 8-10% appreciation of the USD from pre-election levels and 10Y rates about 80bp higher. Our economists note that a 10% appreciation of the USD is estimated to slice around 0.5% off of US GDP growth over two years. Higher mortgage rates from higher bond yields would also likely dampen growth. As a result, they have actually lowered their forecast for US growth in the first half of next year to around 1.5% before seeing it rebound to around 2.3% in H2 and then 2.5% in 2018 as the fiscal stimulus feeds through. Various Fed members, notably Bill Dudley of the NY Fed, have said this year that a stronger USD would have an impact on monetary policy. So to some extent we see USD strength as self-limiting as it would start to lower the profile of likely Fed tightening. Our economists are also cautious as to the extent of the impact of the Trump fiscal plans. Assuming that there is a compromise between the Trump administration and Congress our economists think the likely scale of tax cuts is $2-3tn over 10 years, with $200-300bn of this in 2017. Given the low estimated multiplier from any proposed tax cuts and a Congress likely t