Created by: LPL Research
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As the fourth of eight Federal Open Market Committee (FOMC) meetings of 2016 approaches later this week, the market and the Federal Reserve (Fed) again remain deeply divided over the timing and pace of Fed rate hikes. The FOMC’s latest forecast (March 2016) puts the fed funds rate at 0.875% by the end of 2016. As of June 13, 2016, the market (according to fed funds futures) puts the fed funds rate at around 0.50% by the end of 2016 [Figure 1], not fully pricing in even one 25 basis point (0.25%) rate hike this year. How that gap closes — between what the market thinks the Fed will do and what the Fed is implying it will do — against the backdrop of what the Fed actually does will continue to be a key source of distraction for markets in 2016. Our view is that by the end of 2016, the fed funds rate will be pushed into the 0.75 – 1.0% range, from 0.375% currently…