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YES, AND NO

In the wake of last week’s FOMC decision not to raise rates, markets focused more on the FOMC statement and press conference than the dovish tone the decision may have suggested. In addition to inflation data, the Fed may be looking back at historical effects of Fed tightening during international turmoil. We continue to expect the Fed to hike in coming months, likely in December 2015.

FED: KICK OFF OR PUNT?

The outcome of this week’s Fed meeting is unlikely to materially alter the total return environment for fixed income investors. High-quality bonds can still provide gains and diversification benefits during periods of rising rates. A challenging low-return environment still confronts investors.

SHOULD EMERGING MARKET INVESTORS FIGHT THE FED?

Fighting the Fed may be a winnable battle for EM. EM valuations are compelling and, in our view, have priced in a fair amount of risk. We see sufficient upside potential to maintain modest EM equity allocations despite significant growth challenges.

HOW MUCH, HOW FAR, HOW FAST, NOT WHEN?

Although there is a chance the Fed will raise rates this week, our view remains that the Fed will hike later this year, most likely at the December 2015 meeting. While much of the focus has been on “when,” market participants may start asking “how much” and “how fast” rates may increase once the Fed begins to raise the rates. The current disconnect on the “how much” and “how fast” between the FOMC and the financial markets could be a major issue for financial market participants in the months ah​

BONDS TO FED: DO NOT RAISE RATES

Inflation expectations, the yield curve, and stock market volatility have raised the bar for a September rate hike. The Fed has a tall task ahead to justify a September rate hike, but it nonetheless remains a possibility. We believe the Fed will wait until December 2015 or possibly even early 2016, as there appears little downside risk to holding off.

 
Results: 217 Articles found.
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