“With a gradual approach to tightening, each Federal Reserve meeting next year could offer drama of its own,” Tank said. “Fed Chair Janet Yellen has been saying since the beginning of 2015 that the FOMC was getting ready to normalize rates from zero, and that when the process began, the committee would take its time. Although the communications have sometimes been unclear, ultimately these two elements of the message have been important in setting market expectations.”
“There will be eight Fed meetings next year, and I believe things could get very interesting,” Tank continued. If the markets are right – and Fed Funds futures have been far better than the Fed and Wall Street economists at predicting the trajectory of monetary policy- you could have rate increases coming out of two or three of these meetings. It’s very possible that the Fed will pause at the January meeting and wait and see what happens, with any moves then or later dependent on data readings.”
Tank also noted that the transition that the Fed is commencing from an aggressive stimulus-driven economy to a fundamentals-driven economy is similar to every U.S. monetary cycle of the modern era.
“Such transitions can be tricky from a market perspective, as investors tend to doubt the growth side of the equation,” he said. “Of course, the current cycle has been far from normal, but I believe that investors have gained confidence that the U.S. economy and markets can continue to do well once the process of normalization is underway.”
Despite the potential for volatility around the Fed meetings to come, Tank said 2016 will not be without good investment opportunities.
