By: Sharon Lee Stark, D.A. Davidson Fixed Income Capital Markets

Date: March 2016

2016 : U.S. Economic and Interest Rate Outlook

U.S. Economic Policy and Financial Markets

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Objectives

Why should the Fed adopt a slower path to

higher rates?

Will the consumer spend or save?

Will manufacturing rebound?

What is the impact of oil prices on the

economy?

Will China de-rail the U.S. economy?

3

Growth Stabilizes

4

What Drives Our Economy?

5

Disposable Income Growth

6

More Jobs and More Pay!

7

It is Different This Time

8

Saving is in Fashion

9

Debt-to-Income Ratio

10

Manufacturing Shrinking

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Dollar Impact on Exports

12

Debt Challenges New Household Formation

13

The Kids are Moving Out

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Inflation Poised to Rise

15

Wages

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Global Inflation: Tame

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How Much Lower?

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World Oil Production Drives Prices

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Source: NY Times

Oil Prices Stabilizing

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China’s Influence

21

Follow the Bear

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Source: Bloomberg L.P. 3/7/2016

Global Growth

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Impact of QE on Global Growth

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Source: IMF Data 12/21/2015

Monetary Policy

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Monetary Policy: Cautiously Higher

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Rates Rise, Curve Flattens

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Curve Flattening Continues

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D.A. Davidson Treasury Rate Projections

4Q

2015

1Q

2016

2Q

2016

3Q

2016

4Q

2016

1Q

2017

2Q

2017

3Q

2017

4Q

2017

Actual

Fed

Funds

0.25-

0.50

0.25-

0.50

0.25-

0.50

0.50-

0.75

0.75-

1.00

1.00-

1.25

1.00-

1.25

1.25-

1.50

1.25-

1.50

3-LIB 0.61 0.65 0.65 0.80 1.05 1.20 1.20 1.45 1.45

2-yr 1.05 0.95 1.05 1.25 1.45 1.65 1.75 2.00 2.10

3-yr 1.31 1.15 1.20 1.40 1.60 1.90 2.05 2.30 2.40

5-yr 1.76 1.45 1.55 1.70 1.80 2.05 2.25 2.50 2.60

10-yr 2.27 1.90 2.00 2.10 2.30 2.45 2.55 2.80 2.90

30-yr 3.02 2.75 2.85 2.95 3.05 3.20 3.30 3.55 3.65

2s-10s 1.22 0.95 0.95 0.85 0.85 0.80 0.80 0.80 0.80

Source: D.A. Davidson Fixed Income Capital Markets March 2016

Sharon Stark

Managing Director, Chief Fixed Income Strategist

Sharon Stark is Fixed Income Strategist for D.A. Davidson & Co., providing regular economic outlook and

perspectives on the capital markets, offering timely investment and asset allocation ideas and themes for Davidson’s

clients, and giving regular public commentary in the news media.

Ms. Stark has over 25 years of broad experience in the financial services industry including business strategy

development, bank regulation/policy development, and portfolio management/securities trading.

Before her work with D.A. Davidson, Ms. Stark was with the Fixed Income Division of a regional broker/dealer in

the South, where she also served as a Fixed Income Strategist. She previously served as the Senior Advisor to the

Deputy Director and COO of the Office of Thrift Supervision (OTS) on policy and operational issues designed to

achieve the objectives of the OTS. Her work included participating in review and development of new federal

programs to enhance liquidity and expand credit capacity in the U.S. financial system including the Troubled Asset

Relief Program (TARP) and the Home Affordable Modification Program (HAMP). Before that, she was Chief

Market Strategist for fixed income capital markets with Legg Mason. She served as a spokeswoman for the firm

with appearances on CNBC, Bloomberg TV and radio, and Reuters. Ms. Stark also spent five years with the FDIC

as Deputy Assistant Director, managing the policy and training section of the Office of Capital Markets. She

previously held portfolio management, trading and analyst/research positions.

Ms. Stark majored in Finance at George Washington University and is fluent in conversational Chinese.

Fixed Income Capital Markets

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DISCLAIMER

Appendix - Important Disclosures

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