The week before Christmas
- Traditionally a genial bearded gentleman goes around the world at this time of year distributing gifts. Economists, doubtless through some clerical error, must have been placed on the naughty list as the Fed's taper came three months late or a month early (depending on one's perspective).
- There is clearly a structure to the tapering, and we expect the process to conclude by the end of 2014. The Fed was at some pains to distinguish quantitative and monetary policy and anchor short rate expectations (which markets seem to have taken on board).
- The impact of the Fed's decision is what now matters. The extent to which bond yield increases are transmitted globally and the extent to which market volatility increases is what is important. Emerging markets and the Euro area are vulnerable to both these transmission mechanisms.
- The Euro finance ministers have done a deal on banking union, mainly by deferring all the difficult decisions to a later date. The Italian finance minister suggested the deal was as important as that which established European Monetary Union. We all know how well that turned out.
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