- The Federal Reserve continues to tighten and other Central Banks will follow
- The BIS expects stocks to lose their lustre and bond yields to rise
- The normalisation process will be protracted, like the QE it replaces
- Macro prudential policy will have greater emphasis during the next boom
As financial markets adjust to a new, higher, level of volatility, it is worth considering what the Central Banks might be thinking longer term. Many commentators have been blaming geopolitical tensions for the recent fall in stocks, but the Central Banks, led by the Fed, have been signalling clearly for some while. The sudden change in the tempo of the stock market must have another root.
Whenever one considers the collective views of Central Banks it behoves one to consider the opinions of the Central Bankers bank, the BIS. In their Q4 review they discuss the paradox of a tightening Federal Reserve and the continued easing in US national financial conditions. BIS Quarterly Review – December 2017 - A paradoxical tightening?
To read the entire report, please click on the file below: