Fed likely to delay hikes to 2016

Volatility in financial markets doesn't always correspond to changes in the economic fundamentals, but in the current environment the likelihood of another global growth disap-pointment this year has increased. The outlook for the global economy has been downgraded, with growth tracking a very modest 3% for 2015, a deceleration from 3.4% in 2014, says Economics TD. 

Growth is still improving in advanced economies, but the slowdown in emerging markets has been more pronounced. While the heightened risks emanating from emerging markets will lead the U.S. Federal Reserve to hold off raising interest rates in September, they won't delay hikes indefinitely, adds Economics TD. The U.S. economy continues to strengthen, driven by domestic forces. These forces are unlikely to be derailed by a slowdown in China or other emerging markets. 

"Our base case is for the first rate hike to occur in the first quarter of 2016, with the funds rate rising to 1.00% by the end of 2016 and 1.75% by the end of 2017, only very slightly below our previous forecast", foresees Economics TD.