Since Donald Trump was elected US President in November, talk has grown steadily louder about the pivot from monetary policy to fiscal policy as the engine of future economic growth.

This discussion is valid, and the change in policy emphasis is already occurring, although the exact timing remains uncertain as the details of Mr Trump's policies continue to be refined and the implementation process will be time-consuming.

This switch in policy emphasis from monetary to fiscal is largely a US (and possibly Japanese) phenomenon. The underlying US political backdrop, monetary settings of close-to-zero cash rates for approximately seven years and an unemployment rate now down to 4.7 per cent justify a gradual removal of monetary accommodation.

We expect three interest rate increases from the Federal Reserve in 2017, taking the federal funds rate to a range of 1.25 per cent to 1.5 per cent. Importantly, we do not expect a return to pre-financial-crisis interest rate levels because of the amount of leverage remaining in the system and the inability of borrowers to service debt at much higher interest rates without reducing the growth trajectory of the US economy.

In Australia, however, this pivot from monetary to fiscal is not really happening. The federal government is more focused on achieving budget balance and maintaining AAA ratings than contemplating an increase in productive government spending. This backdrop, accompanied by an inflation rate of only 1.5 per cent versus the RBA's target range of 2 per cent to 3 per cent, suggests that the current 1.5 per cent RBA policy rate is here for the entirety of 2017.

We think the hurdle for cutting rates any further is very high given what is taking place in major east coast city housing prices: With Sydney now the second most unaffordable housing market in the world, according to Demographia, the RBA would not want to be blamed for inflating housing bubbles.

On the flip side, the relatively weak domestic economy, outside of housing, should ensure that any RBA rate hikes are delayed at least until well into 2018.

If we are right in our policy rate forecasts, 2017 will be the first time in more than 15 years that the fed funds rate and the RBA policy rate reach the same level, and as we move into 2018, there is a strong likelihood that the RBA cash rate will actually be below the fed funds rate.

This has implications for investors when it comes to making asset allocation decisions, and expected returns from hedging US dollar investments back to Australian dollars ‒ which have been a boost for many Australian portfolios for some time ‒ will decrease if and when the relative cash rates cross over.

There are several key takeaways for Australian investors in this environment.

First, different policy settings will be applied in different countries, and return expectations should be calibrated accordingly. Second, interest rates will continue to have an implicit cap based on the level of global indebtedness. In addition, the RBA is likely on hold in Australia for 2017, given the relatively weak state of the domestic economy and inflation rates below target.

Finally, uncertainty is increasing, which implies that the probability of achieving expected investment outcomes is lower and the probability of facing alternative scenarios is higher. In this investment climate, there are two effective ways to protect portfolios: diversification, driven by robust risk-factor analysis, and disciplined management of liquid investments.

Robert Mead is co-head of Asia portfolio management at PIMCO in Sydney.