The current dynamics of monetary policies is fascinating. The US central bank, the Federal Reserve or Fed, has just announced implementation at the end of the year of a policy that breaks markedly with its strategy since December 2008. The Fed finally seems to be coming out of the financial crisis that kicked off in 2007/2008. Meanwhile, the European Central Bank (ECB) is sticking to its very accommodative policy on a long-term basis. The Eurozone is unable to let go of the monetary crutches it adopted after the 2008 and 2012 crises.
Amid the further steps taken last week by the Fed and the PBOC to normalise policy and lean against improving economic and asset price momentum, a debate among investors continues to rage about how much global monetary policy is tightening and whether market pricing is appropriately calibrated to policymakers’ reaction functions.