SINGAPORE (Oct 1): On Sept 26, the US Federal Reserve raised the Fed funds rate by 25 basis points to 2.25%. The hike was widely anticipated by investors and markets. One more rate hike is expected in December, and a further three hikes are likely next year.

Rick Rieder, BlackRock’s chief investment officer of global fixed income, takes a dovish view of the next few hikes. “We believe the Fed’s rate-hiking path will be influenced by the US economy levelling off next year, by global economic conditions (including the US dollar), by tariffs and trade impacts, and by how much inflation actually accelerates in the year ahead. The fact is that the new economy evolving today is replete with technology-driven goods-sector disinflation, and that will mean that [further rate hikes will likely be muted]. So, in our view, the Fed will probably tighten only a couple of times or so next year, versus the consensus expectation of three or four hikes, which we think could be excessive.”

Megan Greene, global chief economist at Manulife Asset Management, also thinks the outlook is likely to turn increasingly dovish. “I don’t think they will be able to hike that much,” she says, referring to a fourth rate hike this year, and three more next year. Most of all, the Fed is likely to be worried about the yield curve. Markets look at the spread between 10- and two-year US Treasury yields to confirm that the economy is in a healthy state. The Fed closely studies the spread between the 10-year and three-month yields (see Chart 1).

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