| As investment managers, we evaluate future trends in the economy and translate them into investment decisions for your portfolios. Over the past several years, low-interest rates and concerns about when interest rates might rise dominated discussions. Well, no longer as the Federal Reserve Board raised its overnight interest rate in December. However, deeper questions remain: how fast and how far will interest rates rise and what will be the impact on the global economy?
First, we think the Federal Reserve Board will move slowly and gradually. Remember, the much-anticipated rate hike was just one-quarter of 1%. The US economy is not in perfect condition and inflation is still low, so there is no urgency for the Fed to move quickly. The broad consensus view is that short-term interest rates will end 2016 around 1%. Second, other global economies face a range of economic and political challenges and global central banks seem in no rush to raise interest rates. As a result, we think low-interest rates will continue to be a dominant global theme in 2016.
However, we believe there are reasons for optimism for our longer-term prospects. For example, the United States is a leader in innovation and things are changing quickly with breakthroughs like driverless cars, delivery drones, 3D printers and 4D movies. Ultimately, innovation will provide the seeds of future economic growth and employment, though the journey may be a difficult one for workers who will need to retool their skill sets for the 21st-century economy.
The most important message we can give our clients is that we are thinking about how these factors impact financial markets. Since the global economy is so interconnected, financial markets have also converged. Investors used to look only to bonds as their income source. Today, investors look to a variety of tools including stocks, and currencies as well as bonds, to find income opportunities. We expect this trend to continue in the years ahead.
We thank you for continuing to place your trust in us. Most important, we wish health and happiness for you and your families in the New Year.