Wage growth and tax cuts expected should give consumer spending a boost.

Caution is the watchword for the first few months of 2017 as the new administration of President-elect Donald Trump transitions into power but then expect fiscal growth stimulus to kick in later in the year.

That was the overall conclusion from a Bank of America Merrill Lynch presentation in Manhattan at company headquarters Wednesday morning.

Ethan Harris, head of global economics, said the U.S. dollar has stabilized, adding that “we’ve probably hit full employment, [although] inflation is creeping higher.” He noted the U.S. economy is near the end of a maturing stage, typically reflecting the final healing stage of the economy.

As for the future, he said that depends on “Which Trump do we get?” In the short run, he expects more deregulation and tax cuts, but one key factor is the president-elect’s plan to rip up free trade agreements. “That’s very disturbing to the economy in the short run,” Harris said, explaining that free trade agreements typically have deep links between the signatories and their economies. “Ripping up the agreements hurts growth,” the economist said.

Globally, Harris was optimistic about Japan, noting that for the first time in its 20-year economic malaise the country finally has a tight labor market and easy fiscal policy. As for its neighbor China, Harris expects growth to settle in the 6 percent range. He expects the government will continue to try to move the country from a manufacturing base to a trade and service economy.

Harris projected global growth to be 3 percent, which he calls the “new normal.” He attributed that to weakening demographic patterns and how the new technology is not generating the level of productivity that was expected.

Michael Harnett, chief investment strategist, expects the shift from monetary to fiscal policy under Trump will lead to some volatility in the markets. One bright spot is the expectation that wages will go up. “If wages go up, consumer spending will go up,” he said. He told WWD that compared with five years ago, consumers have increased their savings and now have a better balance sheet, and increased spending on their part would be good for retailers.

“In the immediate future, I’m not too worried about inflation. A little bit of inflation can be good. So long as wages go up, that will help with consumption,” Harnett said.

Michelle Meyer, head of U.S. economics, said she doesn’t expect runaway inflation and projected first quarter GDP growth at 1.5 percent. She expects 2 percent consumer spending growth for the first quarter, but pegs that higher at 2.7 percent for the third and fourth quarters once the fiscal stimulus picks up speed.

Savita Subramanian, head of U.S. equity and quantitative strategy, expects investors to move out from fixed income and into equities. One of the sectors that would benefit from corporate tax cuts is consumer discretionary companies, which includes retail. Personal income tax cuts would also fuel consumption growth, making retailers beneficiaries of the tax change. “The domestic market benefits from strong consumer trends,” she said.