The Fed's decision to raise its target interest rate by 25 basis points in December was a function of both the strength in the labour market and the anticipation that inflation will slowly move back to target. However, while rates have moved off the zero lower bound, this will not be a run-of-the-mill rate hike cycle. Rates are likely to rise by only 75 basis points (to 1.25%) by the end of 2016 and to 1.75% by the end of 2017. The average increase in past rate-hike cycles was roughly 200 basis points within the first year. 

The go-slow approach reflects the need for the economy to grow above trend in order absorb the remaining slack in the labour market, as well as the disinflationary impulse from an improving, but still generally sluggish, global growth environment. 

It also reflects the fact that the terminal level for the policy rate is much lower than it has been historically. While the last rate hike cycle saw rates rise to 5.25%, this cycle is likely to end within a range of 3.00% to 3.25%. However, that level probably won't be attained until 2019.