Fed hikes rates, more likely in 2017

Fed hikes rates, more likely in 2017

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You may have seen the recent news on the U.S. Federal Reserve’s step to slightly increase interest rates. The policy-making committee of the Fed increased the benchmark federal funds interest rate to 0.75%, a 0.25-percentage-point increase and the first since December 2015.

The Waddell & Reed investment team says the increase was widely expected, based in part on Fed Chairperson Janet Yellen’s comments to Congress in November, when she said the economy is making solid progress and an increase could come “relatively soon.”

Our investment team thinks more interest rate hikes are likely in 2017, and anticipates changes to Fed leadership under the Trump administration with a more “hawkish” approach and somewhat higher interest rates in the future.

Overall, we believe this is a first step in continuing to grow the economy strategically.

“Credible analysis of what the fiscal policies will mean for future interest rate hikes will take several months, and we’ll watch the FOMC’s Summary of Economic Projections,” said Mark Beischel, Ivy Investment’s Global Director of Fixed Income. “Recession risks have been pushed out beyond 2018 and, along with higher Treasury yields, provide support for credit spreads.”

Learn more about Waddell & Reed’s views on the coming year in our 2017 Outlook: Change on the horizon.

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The opinions expressed are those of Waddell & Reed Investment Management Company and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through Dec. 14, 2016, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.

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