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Here’s a forecast that should worry investors betting on a second-half surge in the economy

Fred Imbert

Investors betting on a strong pickup in economic growth might want to consider a new forecast hitting Wall Street on Monday.

The New York Federal Reserve now expects U.S. economic growth at an annualized rate of 1.9 percent for the second quarter, down from a 2.3 percent forecast. The bank also expects annualized growth of 1.5 percent in the third quarter, down from 1.8 percent.

The U.S. economy grew at a dismal annualized rate of 1.2 percent in the first quarter.

To be sure, the New York Fed's forecast is an outlier to more bullish estimates. For instance, the Atlanta Fed still expects second-quarter GDP to grow by 2.9 percent, while CNBC's Rapid Update survey is tracking second-quarter growth at 2.8 percent.

Wall Street has been closely watching the U.S. economy as the Fed seems determined to raise interest rates once more this year and start unwinding its $4.5 trillion balance sheet before 2017 ends.

"The uncertainty surrounding this unprecedented decision will source a stiff headwind in the face of the economy which has yet to simmer," Jeremy Klein, chief market strategist at FBN Securities, said in a note Monday, referring to the balance-sheet reduction.

The central bank raised rates last week for the second time this year and maintained its forecast of three total rate hikes for 2017.

Still, investors are not convinced the Fed will be able to hike once more this year. Market expectations for a rate hike thie year are below 50 percent, according to the CME Group's FedWatch tool. The data also showed a rate hike isn't priced in until next March.

"I reiterate that larger institutions, which do not have the ability to manage their positions nimbly, should start to rein in some of their effusiveness," Klein said.

A stronger economy is also making it less crucial for President Donald Trump and Congress to pass tax reform this year.