Investment Clock insights

Fed hikes set to continue

Ian Kernohan

15 December 2016

Yesterday's US Federal Reserve (Fed) rate hike was long expected, so there was no surprise when it came. Attention will now turn to the outlook for monetary policy in 2017. We do assume that a fiscal stimulus programme will be announced next year, however the size and shape of that package will not be visible for some time, while its economic impact is more an issue for 2018 than 2017. We expect the Fed to remain cautious with respect to the pace of rate hikes, at least in the early part of the year, retaining their "gradual" signal. The post-election rise in the dollar and bond yields also argue for a cautious approach, since both act to tighten financial conditions. With other major central banks either on hold or continuing to ease policy, "Fed lone hiker" remains our central case.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.