How debt, the dollar, and China could tie the Fed’s hands

Posted by Satyajit Das

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MW-DA555 econ y 20141202173101 ZH

MW-DA555 econ y 20141202173101 ZHThe Federal Reserve’s recent rate hike is symbolic, intended to signal the end of the financial crisis and the start of normalization.

The rise will have minimal effect on consumption and investment. Analysts have already moved beyond the Fed’s well-telegraphed decision, focusing on the future trajectory of U.S. monetary policy. 

The Fed forecasts around four additional rate increases in 2016 and a similar number in 2017. This would mean that U.S. official rates would be around 1.375% and 2.375% by the end of 2016 and 2017, respectively. The median estimate for the longer-term federal funds rate is around 3.5%. 

Yet the central bank’s moves may be more gradual than most Fed-watchers expect. Here’s why:

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