Talking Points:
• The exceptionally accommodative monetary policy for the world financial system will eventually normalize
• A first move to 'test the waters' by a well-placed central bank is a better approach than a forced change
• Given its position in the global system and its current economic state, the Fed is may be best disposed
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Global monetary policy will eventually turn the corner and central banks will withdrawal the exceptional support and stimulus that has been pumped into the system. The primary question for this inevitability is "when". Given the different circumstances for the major economies and the growing evidence of risk born of the very stimulus aiming to revive the system, the timing is likely sooner than most investors are accounting for. This is very unlikely to be a situation where all the large players act at the same time. Some economies are still struggling near term and a distant effort would imply a rush response to a sharp change in environment to new problems. Therefore, a first mover with clout - to test the waters for the world's financial system - is likely. We consider the probability that the Fed will tighten in the near future and its big-picture implications for the Dollar and global markets.
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