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

< Go to Monday Morning Perspectives

This blog post is for informational use only. The views expressed are those of the author(s), and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client.  Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice.  The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete.  Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements.  Actual results may differ significantly.  Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

Investing involves risk, including possible loss of principal.  Past performance is no guarantee of future results.  All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.

High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.

All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.

Subscribe to Our Publications