The key points are as follows:

  • After a year since the first Fed rate hike in this cycle, the Fed has finally moved the Fed Funds rate up again from a range of 0.25-0.5% to 0.5-0.75%. The move reflects confidence in the ongoing recovery in the US economy.
  • Given ongoing low wages growth, low inflation and a strong $US doing part of the Fed’s job for it, future Fed hikes are likely to remain “gradual” for now but fiscal stimulus under Donald Trump could see it speed up. Expect around three Fed rate hikes in 2017.
  • It’s too early for US monetary tightening to be a cyclical negative for shares, which will also benefit from US fiscal stimulus.
  • Bonds are oversold and due for a pause, but gradual Fed rate hikes and US fiscal stimulus in 2017 will remain a source of upwards pressure on global bond yields.
  • Rising $US interest rates and US fiscal stimulus next year will help keep the $A down.

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