Investment Clock insights

US rate rise to be followed by a few more


Melanie Baker

26 September 2018

Commenting on the US rate rise which has just been announced, Melanie Baker, senior economist at Royal London Asset Management said: 
 
“Tonight’s US rate rise is likely to be followed by a few more yet.  US economic outperformance has more left to run – supported by late cycle fiscal stimulus. More evidence of domestic inflationary pressure is likely. 
 
However, we don’t expect the US Federal Reserve (Fed) to speed up the pace of hikes as US interest rates are already well above their lows, US inflation measures are well behaved and global growth still appears to be slowing somewhat. 
 
Tonight’s 25bp rate rise was very much expected. The Fed also dropped the language around current policy being ‘accommodative’ which makes sense as interest rates approach their lower estimates of ‘neutral’.  The more interesting question was what would they signal for the quarters ahead. The Fed’s forecasts, taken at face value still suggest another four rate hikes by the end of next year. We continue to pencil four into our forecast.”
 
Trevor Greetham, Head of Multi Asset at Royal London Asset Management added: 
 
“At more than nine years, this is already the second longest US business expansion since at least the 1850s and inflation is not yet at a level that would force the Fed to kill the cycle. Concerns are rising though. By this time next year Trump’s fiscal stimulus will be cooling off and interest rates will have risen further. We believe now is a good time to take stock and ensure your multi asset portfolio isn’t over-exposed to exotic high yield investments that would be hard to sell in a market downturn.”

Commenting on the US rate rise which has just been announced, Melanie Baker, senior economist at Royal London Asset Management said:  

“Tonight’s US rate rise is likely to be followed by a few more yet.  US economic outperformance has more left to run – supported by late cycle fiscal stimulus. More evidence of domestic inflationary pressure is likely.  

However, we don’t expect the US Federal Reserve (Fed) to speed up the pace of hikes as US interest rates are already well above their lows, US inflation measures are well behaved and global growth still appears to be slowing somewhat.  

Tonight’s 25bp rate rise was very much expected. The Fed also dropped the language around current policy being ‘accommodative’ which makes sense as interest rates approach their lower estimates of ‘neutral’.  The more interesting question was what would they signal for the quarters ahead. The Fed’s forecasts, taken at face value still suggest another four rate hikes by the end of next year. We continue to pencil four into our forecast.” 

Trevor Greetham, Head of Multi Asset at Royal London Asset Management added: 

“At more than nine years, this is already the second longest US business expansion since at least the 1850s and inflation is not yet at a level that would force the Fed to kill the cycle. Concerns are rising though. By this time next year Trump’s fiscal stimulus will be cooling off and interest rates will have risen further. We believe now is a good time to take stock and ensure your multi asset portfolio isn’t over-exposed to exotic high yield investments that would be hard to sell in a market downturn.”

Past performance is no guide to the future. 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.