- Which brings me to the other major issue that has our financial media outlets preoccupied these days – the (supposedly) imminent end of the near-zero policy and a gradual introduction of US interest rate rises. Such moves, it is widely assumed, will be the final nail in the coffin for emerging markets as the resultant surge in dollar strength pushes developing economies over the cliff.
In fact, this (supposedly) foregone conclusion is the primary reason that emerging market assets are so reviled in the markets today. The total amount of capital that has fled these countries is eye-popping; Capital Economics estimates that US$ 260 billion fled EMs in the third-quarter alone. No one wants to be standing on the beach when the tsunami hits.
But last month the conventional wisdom was disappointed when the Fed chose not to raise rates during its September meeting, citing market volatility and global instability. (The irony of our current situation – that much of this instability can be attributed to years of artificially low interest rates – was likely lost on the Fed’s Board of Governors). Increasingly, some market forecasters are now expecting rates to hold steady through the end of December.
But here’s the thing – and I am more confident in this than ever.
I am now convinced that the Fed will not raise rates until 2017.