... though slowing inflation and a tightening of financial conditions as the market re-prices the Fed may pause hikes in H2-2016 Expectations Implications for the Fed Deutsche Bank Research 2016 Q1 • Inflation to firm-up • Limited adverse impact from first hike on growth • Labour market continues to tighten Q2 Q3 Q4 • Inflation to stabilise, potentially recede ■ Growth and labour market to remain on track ■ Gradual pace to assess impact of hikes on markets, economy ■ Remain data dependent • Rate hikes likely in March, June 40, r4,;seye t,sig ic?iihtett.rg ihongetir nareh db cc n • Growth should remain broadly stable • Continued gains in labour market, with unemployment falling further than Fed expects • Inflation likely to drop modestly in H2 • Tightening of financial conditions likely as market starts to re-price Fed path • Consider tapering the reinvestment of its securities holdings* • Expect one hike in the second half, with scope for skipping a quarter before resuming hikes Note: Currently, the Fed reinvests its maturing holdings of MBS and Treasuries purchased during OE. 9 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0119256 SDNY_GM_00265440 EFTA01459046