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May 20, 2015

Taylor Rule Predicts Fed Rate Hike

By Douglas R. Terry, CFA
After 3 decades of disinflation and 15 years of very aggressive monetary policy, asset prices are high. Returns are expected to be below average for the next decade. Given the hyper-aggressive monetary policy of the last 6 years, the historically low yields on bonds means multi-asset class portfolios will be hampered by low returns on fixed income.

Will the Fed raise rates or not? The following chart shows that their deviation from the Taylor Rule is the largest since 2004. Based on this information, expect the Fed to hike.

Courtesy Douglas R. Terry, CFA for Alhambra Investment Partners (Author Archive Here)
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