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Are we heading for an interest rate ambush?

First published:, 6/01/2014

A new wave of economic optimism in both the US and UK, alongside the Federal Reserve’s recent decision to taper its programme of Quantitative Easing—scale back its asset purchases—opens a new chapter for monetary policy in both countries. After five years of unconventional monetary policies, investors have every right to think we have arrived at the beginning of the end. But they should also see this moment as the beginning of a trend towards higher interest rates. The two new central bank heads, Janet Yellen in the US and Mark Carney in Britain are facing a new quandary, and will have to manage carefully the markets’ propensity to discount higher interest rates, especially in view of extremely low levels of inflation. If they don’t do this well, the credibility of forward guidance could be seriously damaged, leading to renewed market and economic volatility….“more:”