Will tighter Fed policy rattle the markets?

We forecast that US Treasury yields will increase further as the FOMC raises the federal funds rate more rapidly than policymakers, investors and the consensus of economists envisage. By contrast, we expect the yields of governments bonds in many other developed economies to stay very low against the backdrop of exceptionally loose monetary conditions. Meanwhile, an increasingly healthy labour market and strong dollar are likely to remain a drag on the US stock market as they put margins under pressure – we see more scope for gains in equities elsewhere. Finally, we generally remain quite positive on the prospects for emerging market assets.