The Fed risks getting behind the curve on rates

Jarod Dawson, Director & Head of Fixed Income at PM Capital, says there’s risk the market has become complacent on the outlook for US interest rates with a strong US economy potentially placing the Fed behind the curve. Short-term the market has largely priced a 'well telegraphed’ US rate hike, however Dawson says the long-term picture is less clear with the potential for greater volatility. "Longer term we think higher US rates in the face of a much stronger economy is an important way to play your yield investments. You don't want to have any interest rate risk because higher rates are obviously going to be detrimental to that. In the same breath if it is happening in an environment of much stronger growth then that should be pretty good for the credit component of yield securities." Dawson says a healthy US economy could put the Fed behind the on rate hikes. A ‘catch up’ process could result in renewed volatility.