The gradual stance that the Fed will take in tapering its bond purchases and the slower growth of China's economy, with the continuing accomodative monetary policy in Japan and U.K both countries simply have concluded that higher inflation is a price worth paying to revive economic growth.
After the ECB meeting which left interest rates unchanged, Chairman Mario Draghi on a news conference said that:
After the ECB meeting which left interest rates unchanged, Chairman Mario Draghi on a news conference said that:
"The Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time, Monetary policy will remain accommodative for as long as necessary." "Our exit (from low interest rates) is very distant," he added.
So the gradual exit from easy money by the Fed will be in a complex international scenario,with falling prices of commodities which are already painful for emerging markets and developing economies with less growth in their economies,depreciation of their currencies, falling bond prices,tighter monetary, higher interest rates, and falling prices of asset classess. This is the unraveling of the previous scenario of extremely low interest rates in the U.S and weak dollar policy.
Higher interest rates and (U.S. rates will be the benchmark), will mean also lower commodity prices enhancing the fall because of the lower growth of the Chinese economy.
Once the market is convinced that the tapering of bond buys is without a step back,the fall of the bond prices will faster and deeper than U.S. monetary authorities thought, or the tapering will be done in a longer period than initially was thought.
