Ok folks, for those you you who need this stuff to be able to sleep at night, here you go!
This is what the US Federal Reserve's FOMC committee members vision as the future for the US Federal Funds Rate (i.e. interest rates in general) looks like as of today's meeting:
(Right Click "Open in new window" to enlarge)
On average 2 more interest rate increases in 2016.
The green line is the average of each member,s "dots" which represent their individual (one dot per member in each respective year) expectations.
Interestingly, the actual market for overnight lending between banks (OIS), the red line, isn't adjusting to the new data. Debt markets are not buying it. Something to consider as expensive equity markets get more expensive.
Oh and for reference, here is what it looked like in December when FOMC members anticipated, on average, 4 interest rate increases for December:
The OIS market was skeptical then as well.
What our take on all of this is:
The economic signals are not (at the moment) good for growth and while the Fed is reluctant to suggest this publicly for fear of scaring the all important consumer from spending and boosting growth, their credibility has grown thin.
They want investors to take on more risk to paint a picture of a brighter future by driving the value of risk assets higher (so they are, at least temporarily, keeping interest rates down and hoping to encourage investors out of low return safe assets).
Economics is a behavioural science and the Fed (and most central bankers for that matter) wants to steer that behaviour, while behind the scenes there is true uncertainty of what is coming next.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist