8 December 2015 World Outlook 2016: Managing with less liquidity Of course, there is always the possibility that growth surprises to the upside—although this is less likely because the economy has underperformed policymakers' expectations over the past half-dozen years. In terms of the upside risks to growth, the rapid appreciation of the dollar may already reflect the expected divergence of central bank policies. In turn, the pace of dollar appreciation may slow significantly over the coming quarters, and could even reverse, resulting in less drag on domestic production from the export sector than we currently assume. • Another potential upside risk is the labor market. As the job market continues to strengthen and the unemployment rate declines meaningfully further, wage and income growth may rise faster than expected, providing households with even more spending power than we envision. In this scenario, the pace of Fed rate hikes would be significantly faster than that implied by the current median FOMC projections. • The final upside risk pertains to inflation. The aforementioned potential for accelerating wage gains combined with a more dramatic recovery in energy prices relative to our projection—possibly due to either a stronger recovery in overseas growth or substantially less oil production—may push headline inflation more quickly back toward the Fed's 2% target. Relative to all of the aforementioned risks, this is perhaps the one that financial markets are least prepared for. Joseph A. LaVorgna, Brett Ryan, Aditya Bhave, Page 22 IFigure 10: External balances & :financial forecasts :51.1 YAW 201,.M. Fecal banc5.1401GOP -21 -DI -22 -2.1 Ind. bounce, DOM SD 405 .6151 Diode balance. %a GOP -22 -30 -30 Comm 9ccouni, bri -1351 -DI 40 Gummi sesounk %OW". -22 -54 -21 at C.,nirrn (2.”.91 41.7.910 0.13 all25 0105 1.125 391e11. Cole 00 1 01 133 1.5509•• FUR 1.09 OM 097 090 JOY DI USD 151 121 129 10 IISO ow GBP 151 1,42 19 1.27 5,Mct OIRETICM usk Row(/' at e 04,;* age 07. 1 Deutsche Bank AG/London CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL SDNY_GM_00265313 DB-SDNY-0119129 EFTA01458960