Crash in risky asset prices didn’t occur

Dunya Executive - - REPORT - Oliver Jones, economist, Capital Economics

During the last Fed tightening cycle, which ran from June 2004 to June 2006, emerging country assets performed well. Indeed, the prices of some assets, such as emergingmarket equities, rose significantly. Of course, things ended in tears a few years later, but the crash in risky asset prices didn’t occur until long after the tightening cycle was over. Even though we think the Fed will raise rates by more than investors are anticipating over the next couple of years, we don’t think that this will spell disaster for risky asset markets either. After all, monetary policy is set to be tightened further against the backdrop of strengthening U.S. and global economies. We don’t expect the performance of risky assets to be as strong generally as it was from 2004 until 2006. (March 3)

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