Federal Reserve

JP Morgan expects only two Fed hikes in 2017; says Trump’s stimulus will be small

JPMorgan expects only two rate hikes next year

A stronger dollar, lower inflation and a more dovish U.S. Federal Reserve may lead the central bank to increase interest rates twice in 2017, JP Morgan said in a report.

President-elect Donald Trump and his economic stimulus policies could be the catalyst for the first hike of 25 points in June and another one in December.

"If those policies in the first 100 days are relatively market-friendly, then we would expect the signal at the March and May meetings to reinforce expectations for a hike by midyear, and we continue to expect rates to be lifted another 25bp (basis points) at the June meeting," JP Morgan said in its 2017 US economic outlook report.

Some analysts have told CNBC that the Fed may increase rates three times in 2017.

However, the more protectionist approach expected from Trump could hinder the U.S. economy.

JP Morgan has forecast growth of 1.9 percent in 2017 and 1.8 percent in 2018, but such figures do not include the potential impact that ending trade deals might have on the U.S. economy.

Trump, who is taking office on January 20, has said he wants to rip up a trade deal with Asian-Pacific countries, renegotiate the North American Free Trade Agreement and impose tariffs of 45 percent on Chinese goods.

"We are mindful that potentially protectionist trade policies could spark retaliatory measures by other countries that could leave everyone worse off," JP Morgan said.

Furthermore, JP Morgan added in the report that the U.S. Congress will only approve some of the tax incentives and spending plans and, thus, such economic incentives should not lift the economy in a significant way before 2018.

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