The markets are happy to take the Fed at its word that it won't begin to raise rates until mid-2015 and will tighten only gradually after that, but we fear that rising wage and price inflation will force a more aggressive series of rate hikes. We agree that the Fed will hold off until mid-2015, but beyond that we anticipate a more rapid tightening cycle, with rates returning to the neutral level of 4.0% before the end of 2017.
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