The source of this volatility

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Livewire Markets

Sam Ferraro of Evidente says concerns around China's growth rate are a sideshow to the root cause of the current volatility. Early in January the 17 members of the FOMC who influence the direction and rate of change in US interest rates released their projections for 2016. Of the 17 'dot' projections only 4 suggested that rates would be lower than 1% in the US by the end of 2016. Ferraro says; "The overwhelming majority of the FOMC members believe that the Fed funds rate should be above 1% by the end of 2016. Clearly what equity markets and bond markets have been telling the Fed over the past month with all the volatility is that they don't believe the US economy is ready for a rate hiking cycle on that scale." With volatility bubbling at GFC levels (see chart) Ferraro explains why he believes the Fed has committed a policy error and the path he thinks they should follow from here.


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