How far will the Fed go?
As this column is being penned, the US Federal Reserve is preparing to announce its latest rate decision and financial markets are in a real tizzy about that. But to understand the full implications of all this for the Asian region, we need to go beyond the day-to-day volatility in markets and focus on the fundamental forces at work.
For the near term, we need to look at two factors. The first is what happens to US inflation and how that shapes Fed policy. The second is to look at what the outcomes for inflation and monetary policy in Asian economies will be as a result. The key issue for the longer term, however, is to appreciate how fundamentally asset pricing behaviour will adjust as growth, inflation and monetary policy settle into a new equilibrium after all the tumultuous changes of the past few years.
