Fed Chairman statement, after the FOMC meeting, that the economy is in a better shape,confirms what the markets had been anticipated lately, that the Federal Reserve will start to scale back its bond purchasing program
Mr Bernanke hinted yesterday that the Fed might finish its quantitative program by mid-2014.
Because of the short term production overcapacity, high unemployment and low inflation and the policy of back to normalcy on interest rates in the US and a softer Chinese economy. We would expect
lower commodity prices, lower local currencies and bond prices in emerging countries and developing countries.
Before the carry trade was to change US$ dollars to local currencies in emerging countries, and take advantage of their higher interest rates, plus the local currency appreciation that was the norm in the previous scenario.
Now the new scenario, as far as there is no change in policies towards return to normalcy in interest
rates, means a flight to quality, the safe haven is now the US dollar,that means the return of hegde funds from emerging and developing countries, to the US which is having a slow recovery, that could
get better later in the year and even more in 2014 as the IMF suggests.
