When the Federal Reserve starts to raise US interest rates later this year, there will be a major shift in the global monetary regime. Although San Francisco Fed President John Williams has tried to deny that this will represent a tightening in monetary conditions in America, his claim strains credulity beyond breaking point. US monetary conditions may remain easy in absolute terms but, after lift off, the direction of change will unequivocally be towards tightening.
Should investors be worried about what is likely to be only a very gradual change in Fed policy? The taper tantrum in 2013, and the flash crash in bond yields last October, were both unwelcome signals that frothy markets can over-react to very modest changes in economic fundamentals.
