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Markets: Financial conditions tightening – ABN AMRO

Han de Jong, chief economist at ABN AMRO, points out that globally, financial conditions have tightened in many countries in 2018 with higher US interest rates, a stronger dollar, the shortening of the balance sheet of the US Federal Reserve and weak stock markets (outside the US) contributing to this tightening.

Key Quotes

“Emerging economies are particularly vulnerable to this phenomenon and in a range of emerging economies monetary policy has been tightened. Some of them have, in addition, had their own homegrown problems related to a lack of macroeconomic stability.”

“But a key issue for the world economy and for financial markets has been the continued tightening of US monetary policy. While this may be the slowest pace at which the Fed has ever conducted a tightening cycle, they have actually accelerated the pace this year. That is fair enough. The Federal Reserve sets policy for the US economy.”

“The problem lies in the fact that US interest rates are important to the rest of the world and to global financial markets. Arguably, higher (US) interest rates are not particularly suitable at this point in time for other economies or financial markets. Fed policy may be appropriate for the US, but it is not for the rest of the world.”

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