Slowly but surely, the Federal Reserve (Fed) is doing the right thing for the U.S. and global economies.

I believe the Fed’s Federal Open Market Committee (FOMC) statement on March 16 was significantly more dovish than what the markets were expecting. Not only did it pass on raising rates in March; in its statement and Summary of Economic Projections, the FOMC:

  1. specifically cited that “global economic and financial developments pose risks;”
  2. passed on providing a balance-of-risk assessment despite stronger U.S. economic data and the loosening of financial conditions;
  3. alluded to lower inflation expectations as a concern and said that it would monitor them “closely;” and
  4. reduced the number of potential rates hikes in 2016 from four to just two.

It’s true that the Fed did not close the window on any potential tightening, including in April and June. But if the Fed is genuinely concerned about global economic and inflation-expectation issues, it’s difficult for me to see how any of these issues get resolved before June for the Fed to tighten policy further. As a result, I think the probability of a June tightening is actually quite low, perhaps even lower than what the markets are implying.

From an investment perspective, I believe the root cause of the volatility that we had experienced over the past few months was the Fed’s tightening regime. As the probability of a sustained, tighter regime continues to go down, my outlook for risk assets, including equities and credit, continues to improve.

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