The Weekly Brief (21 December 2015) - J.P. Morgan Asset Management

The Weekly Brief (21 December 2015)

Contributor Global Markets Insights Strategy Team

As most participants had expected, the US Federal Reserve raised interest rates last week by one quarter point (0.25%) for the first time since 2006.

Janet Yellen emphasised in her press conference that the pace of rate rises would be gradual. However, the market and the Fed currently have differing opinions on what a gradual rate hike might look like. This week’s chart shows that according to the Fed funds dot plot there could be four interest rate hikes in 2016; however, the market currently expects only two. This gap between the Fed’s forecasts and the market outlook will have to close at some point which could lead to further volatility in risk assets in 2016.

Federal funds rate expectations
FOMC* and market expectations for the Fed funds rate

Source: Bloomberg, US Federal Reserve, J.P. Morgan Asset Management; data as of 18 December 2015.

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The Weekly Brief (21 December 2015)