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Bob Doll: Fed Rate Hikes Likely in September

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Although the Fed doesn’t appear to be in any “immediate hurry to act,” Bob Doll, chief equity strategist for Nuveen, believes interest rate increases will begin in 2015, he wrote in his weekly commentary on Monday.

The Federal Reserve dropped its pledge to be “patient” in raising interest rates, according to a statement issued March 18. Doll believes that will happen at the September policy meeting, not in June as others have speculated.

“Our view is the Fed is reacting to the strong upward trend of the dollar, muted wage increases and signs that economic growth has become sluggish,” he wrote. “Federal Reserve officials understandably want to retain some flexibility, but we believe rate increases at some point over the coming months are almost inevitable.”

Doll noted that with the likelihood of increased rates later this year, the “reflation banner is being passed from the U.S. to the euro area and Japan.”

A March survey of fund managers by Bank of America Merrill Lynch found global investors fearing a second-quarter rate hike reduced their equity holdings, with 19% of global asset allocators saying they were underweight U.S. equities, the most since January 2008. According to Doll’s commentary, that move may be premature.

He anticipates equities will be attractive for some time. Reflationary trends have been a “critical driver” of equity performance recently, and many central banks are early in the easing process. Furthermore, whenever the Fed does begin raising rates, it’s starting from such a low point that “monetary policy should remain supportive for equities for some time.”

Doll wrote that the dollar’s growth will continue, but is likely to slow down. That’s good news for the manufacturing sector, which has been hurt by the strength in the dollar, he said, although winter weather and a port strike on the West Coast are also factors.

– Related on ThinkAdvisor: Bob Doll’s 10 Predictions for 2015 on Markets, Economy