### POV: Maybe the markets are too...>

US TSYS/STOCKS: ### POV: Maybe the markets are too complacent about eventual Fed

rate hikes? The bond and stock market behavior suggests it may be overconfident

that the Fed won't be able to actually keep its expected December 25-bps U.S.

rate hike, after most likely announcing the Q/E balance sheet taper program in

Sept. FOMC, then starting to do it in October. 

- The market is "very disbelieving," said MUFG's John Herrmann. But he estimates

the US economy will drove 2% in 2017, "maybe even 2.2% next year, then 1.8%-1.9%

in 2019," while "the unemployment rate could decline 60-70 bps from where we are

now," at 4.3%, "to 3.5%, 3.6% by 2019%" after hitting 3.8%-3.9% by end-2018.

"The idea that the Fed is only going to hike once next year is a crazy idea," he

added. "Even if the Fed does not believe in the Phillips curve, we should have

the Fed Funds rate at its neutral level, which is 1.5%-1.7%" compared to current

FFR range of 1.0%-1.25%, he added. 

- Herrmann adds in next "5-6 weeks," mkts are "still not out of the woods" yet

amid potential turmoil in Washington DC, and need to deal with politics, tax

reform, Tsy debt limit and new 2018 fiscal yr budget (fiscal yr starts Oct. 1).