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Fed rate rise expected to be first of many - industry reacts
16/03/2017 , News Team

The Bank of Singapore’s chief economist Richard Jerram has said the US Federal Reserve “did nothing to shock” when it hiked interest rates by 0.25 percent, but noted he expects “seven rate hikes by the end of 2018” until rates are back to normal at three percent.

Mr Jerram went on to describe the reaction to “these early stage moves” as “quite benign” once the financial market has adapted to the “beginning of a tightening cycle”.

Nancy Curtin, chief investment officer at Close Brothers Asset Management said last week's US job report was "the green light the Fed needed for its eagerly anticipated rate rise. With the economy approaching full employment and indicators looking more robust, the Fed felt confident continuing on the path to normalisation.

"At currently activity levels, the economy should be well able to tolerate moderately higher interest rates."

Head of European Income at Liontrust, Olly Russ, noted that he expects US bond yields to continue to rise.

He added: “Rising long-term US yields tend to correlate with better relative performance of European equities, driven by ‘value’ areas to which Europe is unbiased, in particular the financials sector, where higher rates mean better net interest margins for banks and better reinvestment rates for insurers.”

Portfolio manager and research analyst at Western Asset, John Bellows, said the Fed is “likely responding to the sharp easing in financial conditions that has occurred over the past few months.”

Mr Bellows continued: “It’s important to remember that financial conditions can be volatile and fragile and, understandably, the Fed refrained from incorporating an additional easing of financial conditions into their outlook going forward. Nonetheless, financial conditions will likely continue to be an important part of the Fed’s actions this year. 

“Bond yields have moved lower in response to the Fed’s actions. By communicating that little has changed in the broader outlook, the Fed likely disappointed investors looking for signals of a more significant shift in the Fed’s thinking.”

Ken Taubes, head of investment management for the US at Pioneer Investments, concluded that the Fed “risks falling further behind, potentially requiring greater rate increases in the future that could destabilise the markets and economics growth.”

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