Pace of Fed rate rises will be key

The prospect of the Federal Reserve lifting rates from historic, crisis-era lows remains the defining factor for global market sentiment.

The guessing game about the exact date on which the Federal Open Market Committee makes the first move is still grabbing headlines.

But analysts are looking ahead to a consideration that could be more influential: how the pace of further, subsequent rises might make its presence felt.

In updating its thinking on the outlook for a range of asset classes, Goldman Sachs has focused on their relative valuations compared with the start of previous monetary policy tightening cycles.

"US credit risk looks fair, US equity is rich, the Fed funds rate is a bit high and the US Treasuries term premium [the list of factors that affect bond yields other than the expected real rate of interest and inflation] is very low.

"The speed and size of rate hikes will matter far more than the timing of lift-off," wrote Goldman's Charles P Himmelberg in a note to the bank's clients.

"Fed communications strongly suggest that this rate-hike cycle will be studiously data-dependent . . . The expected 'shallowness' of the rate path mainly depends on the expected sluggishness of growth and inflation data."

So, while bets continued to be laid on the timing of the Fed's first move, investors should also watch out for signs of stretched valuations as the US central bank sets the pace of the tightening cycle.

[email protected]

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation