I think we will likely see a different market reaction when the Fed next bumps the Fed Funds rate, which looks to be in June, assuming oil has bottomed (which I think it has) and that U.S. economic data remains solid (which I expect). Since they apparently have taken March off the table due to market volatility and the market pricing in very tepid inflation expectations (1.5% 10 years out), I think investors now probably believe they are going to be pragmatic, not dogmatic, about the need to “normalize”, and that they will continue to weight market-based signals reasonably in their deliberations. If so, a modest rate hike then will probably be taken to indicate that the US economy continues to strengthen and should not meet the same reaction as the widely believed premature tightening in December.
The views expressed in this report reflect those of the LMM LLC (LMM) strategy’s portfolio manager(s) as of the date of the report. Any views are subject to change at any time based on market or other conditions, and LMM disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued.
©2016 LMM LLC. LMM LLC is owned by Bill Miller and Legg Mason, Inc.
Share your comments and questions with us.
Share