The Fed hikes and Trump stimulus in 2017

Please click the link below to view Shane Oliver's views on the implication for investors following the recent increase in interest rates in the US.

Key points raised are:

  • After a year since the first US Fed rate hike in this cycle, the Fed has finally moved the rate from 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 dollar doing part of the Fed's job for it, future Fed hikes are likely to remain gradual for now. However 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 will remain a source of upwards pressure on global bond yields.