Fed Reduces Expectations for Rate Increases

March 21, 2016

Fed Reduces Expectations for Rate Increases Photo

As anticipated, the Federal Reserve (Fed) reduced expectations for future interest rate increases at its meeting last week. Risk markets rallied on the news, with the S&P 500 Index and Dow Jones Industrial Average recouping all of the losses from earlier in the year and crude oil pushing above $40 a barrel. The Fed's dovish change in tone puts the market in an interesting dilemma: Will more monetary stimulus drive stronger economic growth, or is weak growth domestically and globally requiring the Fed to be more dovish?

I continue to believe that U.S. growth is reasonable at a roughly 2-3% increase in gross domestic product (GDP). I also believe that significant financial strain remains in overseas markets. These two factors have a counterbalancing effect and exacerbate the volatile market action this year.

Given the stock market’s significant rally over the last month, I am becoming more cautious on performance going forward. I prefer to remain short interest rates with a bias toward fixed income of shorter maturities.

Tags: Monday Morning O'Malley | Federal Reserve | Interest Rate | GDP | Market expectations

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