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2017 look ahead: Federal Reserve

Wei Li, head of investment strategy at EMEA iShares BlackRock, says the markets have been widely anticipating the move from the Federal Reserve on 14 December.

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What the markets are now having to contend with is an increase in the angle of the trajectory of the path of US rate rises in 2017.

Wei also says though that so called ‘dot-plot’ projection has a large margin of error and what we saw in December 2015, where the Fed had indicated the possibility that the markets could expect as many as four US rate rises, was in reality just one and the markets had to wait twelve months for it. However, with the 'hawkish spin', that Wei says came with the Federal Reserve's most recently published notes along with the rate hike, comes the prospect of continued US dollar strength.

Wei qualified this though, by saying that it would be unlikely that the dollar would continue to rise at the rate that we have seen since the correction after the election of Donald Trump.

The biggest risk from the Federal Reserve interest rate strategy, Wei says, is the potential adverse reaction to the rise in the US dollar from US corporates. For this reason she says that BlackRock prefers Japanese equities over US equities in 2017.

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