Fed Hike: A One-and-Done Affair?
In the near term, the slow-raise policy signaled by the Fed would have minimal impact on corporate bonds.
Dave Sekera: It has been an unprecedented seven years since the Fed lowered the federal-funds rate to its current zero interest-rate policy. While economic growth has been generally lackluster since the recession ended 25 quarters ago, there have only been two quarters of negative real GDP growth, and unemployment has dropped from 10% to 5%. Thus far this year, GDP has risen at an average rate of approximately 2.25% and the monthly increase in payrolls has averaged over 200,000 per month. Wage growth has also finally started to pick up, rising 2.6% this year. For 2016, we expect U.S. GDP growth will expand at a pace of 2% to 2.5%. With the credit crisis well behind us, unemployment declining to its long-run central tendency, and positive economic growth ahead of us, this backdrop should be sufficient to persuade the Fed to begin raising short-term rates this month.
Based upon recent commentary from Fed Chair Janet Yellen last week and Vice Chairman Fischer two weeks ago, the Fed has signaled it is primed to raise rates in December. However, the Fed has also let the markets know that the rate of further future increases will be exceedingly slow. For now, it appears the most likely near-term outcome will be "one and done."