The Federal Reserve increased short-term interest rates for the first time since June 2006, ending an unprecedented era when rates were suppressed to less than 0.25%. The Fed determined this increase was appropriate after the U.S. economy continued to deliver consistent job gains, strong automobile sales, and an improving housing market. Meanwhile, deteriorating conditions in many emerging markets have accelerated, with China at the epicenter of the malaise. These conditions are likely to last for some time, putting pressure on corporate and government finances in the developing world. The Fed’s decision to raise interest rates will put additional stress on these borrowers, which could very well lead to disruptions in credit markets. In light of these circumstances, we believe it is prudent to reduce risk by increasing the cash allocation in client portfolios.