In the coming year, Fed will be the first major central bank to raise its interest rates and exit from its ultra-loose monetary policy. After a first hike, likely on December 16, the central bank is set to take more steps in 2016.

With GDP expected to grow by 2.5% next year, the US economy will expand at same pace as in this year. Strong domestic demand should counter balance for slowing demand from EM countries and dampening effect of USD appreciation.

How rapidly the central bank normalizes its policy is the decisive factor for the markets. The strengthening of wage growth and signals of higher inflation mainly impacts this.

"We expect this to be the case because an unemployment rate of 5.0% suggests that the US economy is close to full employment. Numerically, there are currently 0.7 vacant jobs for every unemployed person, implying that the negotiating power of employees ought to increase", says Commerzbank.

The Fed is thus likely to increase the funds rate in 2016 at a sharper pace than the markets presently anticipate. The past few months have shown that the Fed is prepared to sit on its hands if financial markets take a turn for the worse, temporarily. 

"The market reaction should in turn force the Fed to pause for reflection, which is why we expect a pause in the rate hike cycle during the summer. The Fed should then resume rate rises and we envisage the funds rate at 1.25% by the end of 2016", added Commerzbank.