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The Fed has a credibility issue: Wells Fargo co-head of Global Fixed-Income

After a brutal third quarter, the markets continue to be volatile into the last quarter of the year. The Fed is being blamed for a big role in the uncertainty in the markets.

“The Fed, in my mind, has a bit of a credibility issue,” said Brian Rehling, co-head of Global Fixed-Income Strategy at Wells Fargo Investment Institute (WFC). “They've kind of communicated to the market that it's likely they're going to raise so I do think we'll get a raise in December. Even if the data doesn't necessarily warrant it,” he said.

China’s economy is also a major wildcard that’s weighing on the markets. The International Monetary Fund slashed its global growth forecasts for a second time this year citing the slowdown there. Rehling is also worried about China’s growth decelerating. “How the world reacts to that impact globally continues to be a concern for us and the markets,” he said.

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Despite global growth issues, Wells Fargo is forecasting domestic growth to stay on course in the “mid-to-low two percent area, leaving the U.S. mostly taking just glancing blows for now,” it wrote in its recent report.

As for investors, Wells Fargo is recommending its clients to be overweight in stocks over bonds in the low-interest environment. “While we may be in a rough patch here, we do think equities continue to lead the best returns,” said the strategist.

Specifically, “domestic and large cap…the more established companies especially those with a lot of earnings here in the U.S.,” said Rehling.

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