US rate rise marks end of an era

The long-awaited interest rate hike from the Federal Reserve in the US sparked a range of reactions from fund managers.

“The decision reaffirms the strength of the US economy but expect the Fed to proceed slowly and cautiously”, commented Baring Asset Management’s, Christopher Mahon. He added: “The Fed’s caution means there is a difference between moving gently off the emergency rate of 0% and the withdrawal of liquidity that comes with a true rate hiking cycle. What we have seen is not the Fed taking away the punchbowl but instead a very mild watering down of the liquor itself.”

According to Valentijn van Nuiewenhuijzwen, head of multi asset at NN Investment Partners, the markets reacted positively to the rate rise. He added that he expected three further rate hikes in 2016. Amundi head of strategy and economic research, Bastien Drut, said that one of the most striking aspects of the Fed’s move is the decision to continue to reinvest securities (Treasury bonds and MBS) held by the Fed and reaching maturity until the “the Fed fund normalisation process” is well advanced. He added that there is considerable uncertainty over the path of inflation, given falling commodity prices, and that US dollar appreciation will be a factor influencing future rate rises.

When considering if the Fed made the correct decision on raising rates, Ariel Bezalel, manager of the Jupiter Strategic Bond Fund, said: “Monetary policy operates with a time lag, and it will be several months before we can assess the impact of the Fed’s move on the US economy. However, a number of leading indicators suggest to us that the US economic recovery is less secure than is commonly believed.”