A slow but steady removal of monetary stimulus in the US over the next few years is likely to have important implications for a wide variety of financial market instruments. It should buoy the dollar, put gradual upward pressure on the yields of government bonds, and continue to sap demand for many “risky” assets that previously benefited from the Fed’s quantitative easing. That being said, we do not anticipate a re-run of the upheaval that was triggered by the publication of the minutes of May’s FOMC meeting, as investors now appear to have acclimatised to the prospect of less accommodative monetary conditions and the US central bank is likely to tread cautiously.
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