The US economic recovery appears to be on firmer ground, given strong employment and consumption growth. Consequently, Epoch believes the Federal Reserve is unlikely to cut interest rates into negative territory during 2016 or even 2017.

However, the Fed rightly worries about anaemic global growth and the vulnerability of the US economy to external shocks from China or global energy markets. In fact, the Fed is sufficiently worried that it is updating its playbook and giving serious thought to how it might follow the lead of the European Central Bank and the Bank of Japan and introduce a negative interest rate policy (NIRP).

Epoch believes that if the Fed was to cut rates below zero, the US equity market might experience a modest and temporary boost; the financial sector would likely underperform significantly, especially relative to defensive sectors.

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