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By Jeremy Glaser | 09-17-2014 04:00 PM

Koesterich: This Bull Market Can Survive Higher Rates

The U.S. economy and stock market should be able to absorb a measured rise in rates starting next year, but investors should expect subsequent raises to come soon after, says BlackRock's Russ Koesterich.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We are at the Morningstar ETF Conference. I'm joined with Russ Koesterich, the chief investment strategist from BlackRock.

Russ, thanks for joining me.

Russ Koesterich: Jeremy, thanks for inviting me here today.

Glaser: Certainly the Federal Reserve has been one of the key focuses of the market recently. We heard from them today that rates are going to stay low for "a considerable time," still using that language. What's your outlook on rates? What do you think the Federal Reserve is going to do?

Koesterich: There are a couple of things to consider. The Fed did keep the "considerable" language in the statement, but in the press conference, Chairwoman Yellen actually went to some pains to point out that there is not a hard time frame associated with that. What the Fed is telling us is that it's data dependent. And if you look at their estimates, they are a tad more hawkish than they were back in June. So we're seeing some reflection of the fact the economy is strengthening, at least on a cyclical basis. That suggests there will probably be a Fed hike sometime in the first half of 2015.

Maybe more important than the initial date is that subsequent hikes might be a bit quicker than the market expects. I think that's part of what you need to consider--not only the date of the initial hike, but also how does that progress from there? Where do you wind up? Those are the other components of this that investors want to consider.

Glaser: But you do see the U.S. economy has been strong enough to support higher rates?

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