Various industry figureheads have shared their views with this news service following the US Federal Reserve's decision earlier this week to increase its benchmark interest rate.

Wealth managers globally have shared their views with Family Wealth Report on the US Federal Reserve’s decision to hike its benchmark interest rate by 0.25 per cent for only the third time in a decade.

The central bank earlier this week voted to raise its key rate target to a range of 0.75 per cent to 1 per cent.

Many anticipated the Federal Reserve to raise rates following a robust February jobs report, strong pay rises, swelling inflation and a 4.7 per cent dip in unemployment.

Policy makers at the Federal Reserve are expected to increase rates three time this year.

On the following pages is a raft of reactions from wealth management industry figureheads from across the world.

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BlackRock:

Rick Rieder, chief investment officer of fundamental fixed income, said:

“As we expected was likely near the beginning of the year, the Federal Reserve’s Federal Open Market Committee (FOMC) raised its policy rate level by a quarter point. This was only the third time the central bank has hiked rates since before the 2008 financial crisis. In recent weeks, a series of Fed speakers began to telegraph this move, but its likelihood was given a low probability by the markets even a few weeks ago. As indicated by yesterday’s statement, however, the labor markets have continued to improve strongly, inflation rates and expectations continue to firm, and we believe the Fed has largely achieved its mandated objectives for the time being. We applaud the Fed for its courage in continuing to move rates forward, despite what has been divided opinion among the Fed participants, and for the courage to describe a policy that would suggest at least three rate moves this year on the road to policy normalization, which will continue into next year.

“This series of policy rate moves should begin to approach a more normal rate and financing dynamic that is closer to being consistent with today’s levels of economic growth and inflation. Further, in our view, the elasticity of interest rate sensitivity is not linear and is in no way symmetric at different rate level thresholds. In other words, moving policy rates from 4 per cent to 6 per cent would essentially shift financial conditions from fairly restrictive to more restrictive, but moving rates at the lower end of the spectrum must be thought of differently. Indeed, moving from negative real rates to modestly positive rates is not only still extremely accommodative and economy/market supportive, but it brings the financial system closer to an equilibrium. Such a move is in fact healthy for financial transmission mechanisms that have been impaired by artificially distorted rate levels. Indeed, velocity of money has been muted, pension funds have been impaired by burdensome discount rates, insurance companies weren’t able to write business at reasonable levels, and savers have been penalized. As policy continues to normalize, these pernicious influences should abate and confidence in corporate investment may return.

“Importantly, the transition from monetary policy to fiscal policy has begun in the US, and the baton has now been passed to the executive and legislative branches of government, which are responsible for enacting policies that can carry growth further. We are optimistic on the potential for fiscal policy to spur growth, which would allow the Fed to continue down its path of policy and rate normalization. Alternatively, if policy disappointment ensues toward the middle to latter parts of this year, we could see the Fed pause. While that isn’t our base case, and we anticipate the Fed moving three, or perhaps even four, times this year, a lack of policy implementation would severely brake that dynamic. We think the legislative process needs time to play out, but expectations/optimism is running quite high right now, so a disappointment would be a blow to markets.

“That said, while many market participants assume that risk assets are bolstered by extreme policy easing and are potentially hurt by the process of policy normalization, we think the reverse is the case in the current environment. At those meetings, the BoJ critically shifted monetary policy to focus on rate targeting, rather than negative rates, and the Fed inched closer to its eventual 2016 hike in December, which both resulted in yield curves steepening. The resulting performance of risk asset markets clearly indicates to us that market participants are more than comfortable with the idea of a monetary-to-fiscal policy transition, and in fact, they actively seek it.

“From a global policy perspective, we think that the Fed moving is the first stage in a cycle that will later this year see the European Central Bank discuss a more normalized rate policy, and then lastly Japan’s BoJ may at least expand its 10-year JGB yield target range. In our estimation, these are all healthy developments for the global economy. While many look toward the Fed to also reduce its balance sheet, we do not perceive any signs of that and would echo the comments by chair Yellen in her earlier statements that rate changes would be the more effective tool for adjusting monetary policy, at least for a while yet.”
 

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PIMCO:

Rich Clarida, global strategic advisor, said:

“Although there was no drama in the Federal Reserve’s decision to remove 25 basis points of accommodation (also known as a policy rate hike), there was a surprising – and laudable – amount of substance in the changes to the accompanying Fed statement. This is a Fed that likes to say it’s data-dependent, but as we’ve written, data dependence by itself is not a monetary policy. The statement goes some way in laying out what the monetary policy goal is and – via the “dot plot” – what the path to a neutral policy rate may look like.
“First and foremost, the normalization path implied by the median ‎dot is unchanged from the previous projection in December 2016: three hikes in the fed funds rate in 2017 and three hikes in 2018. What’s also important is that in today’s statement the Fed added new language that this lift-off path is expected to be consistent with inflation that will “stabilize” and be “sustained” and “symmetric” around the Fed’s 2 per cent target. (Recall that the Fed’s preferred measure of U.S. inflation is Personal Consumption Expenditures, or PCE. The more widely quoted Consumer Price Index  per cent as of the end of February 2017 for annualized core inflation.)

“So far, Fed statements and comments from key officials had been preoccupied with risk management. With this interest rate hike and confirmation of a gradual but regular pace of hikes, the Fed is conveying a level of confidence in the economy as well as reinforcing that the 2 per cent inflation target is symmetric – that is, inflation overshoots are neither more nor less tolerable than undershoots.

“Of course, little is known about the ultimate shift in US fiscal policy that is likely to take place under the Trump administration, but the Fed is saying today that even before the potential fiscal boost is factored in, the US economy no longer requires emergency policy rates.”
 

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Thomas Miller Investment:

Abi Oladimeji, chief investment officer, said:

“As widely expected, the Fed raised US interest rates by 0.25 per cent. There was no element of surprise to the decision to raise rates as various Fed officials had provided ample guidance to the markets in recent weeks.

“What appeared to catch a lot of investors off guard was the Fed’s refusal to rise to the hawkish expectations of market participants, many of whom were seeking signs that the central bank might be considering a more aggressive response to increasing optimism on growth and rising inflation expectations.

“The pace of US economic growth picked up strongly in the second half of 2016 and key leading economic indicators continue to flag that barring any unforeseen negative shocks, the pace of economic growth should remain above trend during the first half of 2017. Viewed in that context, the Fed’s decision to move early in the year can be seen as risk management. While there may be upside risks to inflation, there remain notable downside risks to growth projections.

“Much of the optimism about the growth outlook in the US centres around the policy proposals of the new administration. Clearly, well-designed policies that cut taxes, boost infrastructure spending and reduce regulatory burden will stimulate growth and spur inflation. However, the delivery of these policy proposals entails significant implementation risks. The Fed is right to adopt a ‘wait-and-see’ approach.”
 

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Cannacord Genuity Wealth Management:

Richard Champion, spokesperson, said:

“By last night pretty much everyone expected the Fed to raise rates by 0.25 per cent, and so they did. Fears that they're being too cautious in the face of an economy which, if not white hot, seemed to be glowing red (inflation rising, unemployment down to 4.5 per cent, Trump stimulus yet to come), have abated as post-meeting comments from Fed Chair Janet Yellen were soothing.

“Core PCE inflation is now forecast to rise to 1.9 per cent this year, as wages aren’t rising much. In 2018 and 2019, core inflation is expected at 2 per cent. Economic growth projections are steady, at 2.1per cent in 2017 and 2018, down to 1.9 per cent in 2019. And unemployment, after 4.5 per cent this year, is projected to stabilise at 4.7 per cent in 2018.

“For now, Janet Yellen and her Fed colleagues have stuck with three rate rises for 2017 (including this one) and another three for 2018, which is unsurprising given the moderate economic outlook. That would take short-term US interest rates to around 2.25 per cent by the end of next year and to its 3 per cent forecast by the end of 2019. Yellen explained that Fed inflation was close to its goal and the risks to the target were ‘symmetric’.

“The placid tone and mild projections pacified markets and boosted animal spirits in equity and more defensive investments. US Treasury yields dropped by more than 10 basis points across the curve. The dollar fell by 1 per cent against most currencies. This should set the stage for a market less worried about inflation in the next few months, with government bonds trading within ranges as opposed to ever-rising yields.

“There are fears that by not changing the velocity of its monetary tightening, the Fed risks falling behind the curve. The US economy is like a locomotive, gathering speed as the engineer ponderously consults the operating manual on what to do if the brakes fail.

“Of course, a moderation in Chinese growth, the rise in the US dollar and the recent increase in American bond yields might do the Federal Reserve's work for it, in which case the Fed’s gradual approach will be vindicated.  If strong economic sentiment translates into faster than anticipated actual growth over the coming months, the Fed may need to raise rates more quickly than the market expects. But for now we appear to be in goldilocks territory again – with activity neither too hot to cause accelerated monetary tightening, not too cold to prompt a return to emergency policy measures.”
 

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deVere Group:

There are three key questions investors now need to ask themselves in the wake of the Fed’s interest rate hike.
deVere Group’s founder and chief executive, Nigel Green, is commenting after the Federal Reserve raised interest rates for the second time in three months on Wednesday.  It was prompted to do so by strong jobs data, and forecasts that inflation is heading towards its target.
 

Green said: “This rate rise by the world’s defacto central bank confirms that we’re in a new era of higher inflation and higher interest rates.  Investors will now need to position themselves accordingly.

“Rates are beginning to normalize. Whilst it may take a couple of years or so to get there, when they do the global economy will look very different to how it does today.

“With this shifting landscape, investors now need to ask themselves three key questions.”

He continued: “First, is my portfolio truly diversified?  Having a well-diversified portfolio is one of the fundamentals of successful investing, but alarmingly, and for a myriad of reasons, many investors are simply not adequately diversified. This puts them at risk and means they are likely to miss out on opportunities.

“Being truly diversified across asset classes, sectors and geographical areas, and not trying to be too smart with sector or regional bets, is perhaps more important than ever. The traditional interrelationship between sectors and regions has diminished since President Trump took office.  A lot will be riding on which way the greenback heads and, crucially, which policies are green-lit by Congress.

“Second, am I prepared for dollar swings?  In the short term, higher Fed rates will attract overseas capital into the US, especially to those sectors, such as energy and financials, that will most likely benefit from Trump’s policies. On the flip side, emerging markets will become less attractive because a strong dollar makes interest and repayment more costly in local currency.

“However, the strength of the dollar might weaken again in the coming months.  The markets are pricing in three hikes in 2017 – I think it will be two, which would result in a fall back of the greenback later in the year.

“And third, am I prepared for inflation? The American economy might not have a serious issue with inflation now, but we can be almost sure inflation is going to creep up on us.

“Investors need to keep some powder dry in preparation for this time as their dollar-buying power will be hit when it finally arrives.”

He concluded: “Investors who answer these questions honestly and then take affirmative action will find that they do not need to accept lower returns in this new era of higher rates and inflation.”
 

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Investec Wealth & Investment:

Shilen Shah, bond strategist, said:

“Despite the Fed confirming that the path of interest rate increases will remain unchanged from December’s forecasts, a neutral bias in Yellen’s statement was read bullishly by the markets. The confirmation that the Fed appears to be in no hurry to increase interest rates materially in 2017 or 2018 saw government bond yields fall, with the 10 year US Treasury yield dropping below the psychologically-important level of 2.6 per cent to trade at 2.52 per cent. After a day of strengthening, the dollar also weakened, with the Dollar Index down 0.9 per cent on the day. A cautious Fed was also supportive for equity markets with US and global equity indices pushing higher following the statement.”