The gyrations in equity and commodity markets have raised expectations that global monetary policy will remain looser for longer than previously expected, but we think that the fallout will actually be fairly modest. The People’s Bank of China may loosen policy more than we had previously anticipated in the coming months, and lower oil prices have reinforced the case for the ECB and BoJ to continue with, or step up, their asset purchases. But US policy-makers will keep their eyes firmly on the domestic economy, which is going from strength to strength. The Fed should therefore still raise rates before the end of this year, possibly even in September, and will probably tighten policy further than most expect in 2016.
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