Along with a number of Fed committee members, she has adopted a clearly
hawkish tone in recent weeks so as to prepare investors for what should be a
gradual tightening of monetary policy. Together, they regularly cite the number
of job creations -to remind investors that the labour market is performing well-
and stress upbeat consumption data. They also believe that turmoil in emerging
markets will not thwart the recovery cycle.
Janet Yellen has little choice but to move onto the offensive this month;
staying put would mean sending a negative signal on the state of the US economy.
The first US rate rise in 9 years is expected to be limited to 0.25%.
Subsequently, the Fed could opt for fresh but modest hikes in 2016 -in line with
key data like inflation and the US dollar- and take rates to 1% by the end of
Ultimately, the real question is to what extent the Fed will want to provide
forward guidance. So far it has not done so: the dots on its so-called “dot
plot” are too far apart to be a reliable guide. Will the Fed simply say that
future rises will depend on the economic situation? That would mean depriving
markets of any bearings. What features, beyond a change in its “dots”, will the
bank use to convey the message that an interest rate rise will initially be
limited? The first indications will be of vital importance for investors.
US-eurozone monetary policy divergence will gradually increase in coming
months, a trend that will undoubtedly make old Europe -and European equities in
particular- more attractive. Eurozone cyclicals with strong domestic exposure
are the most likely to perform well.
December 2015. This document is non-binding and its content is exclusively for information purpose.
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