UBS: The US Economic Recovery Will Continue Through 2016

UBS forecasts that the US economic recovery will continue till at least 2016.

"With the Fed's QE program terminating in the current Q4(14), the economy finally will be "on its own." Continuation of the momentum initiated by expansive stabilization policies will entail various legacy effects of earlier growth," UBS Maury Harris said.

They project that real GDP growth will be at 2.8% in 2016. They forecast 2.9% for 2015, revised downward from 3.2% because of the potential impacts of a stronger dollar and lower foreign growth.

The firmer dollar could draw capital into the US, although a sliding trade balance could remove a half percentage point from Q4 growth in 2015 and 2016, they wrote.

They forecast that wage and price inflation will modestly increase, with core PCE inflation - the Fed's preferred measure - expected at 2.1% in 2015 and 2.2% in 2016.

They maintain their projection for the Fed's first rate hikes in mid-2015, and see the federal funds rate at 2.875% at the end of 2016. The fed has held this rate near zero since the 2008 recession.

"Moderately accelerating wage and price inflation" will be important for rising interest rates, they wrote.

The yield on the benchmark 10-year Treasury note will be in the 3% - 4% range, they forecast.