Tighter monetary policy by itself creates a headwind to asset prices, but the net effect on asset prices and valuations could remain positive if it is offset by resilient growth.
As recently as six months ago, many investors expected the dollar to continue its rally of the past few years based on stronger economic growth, via Trump's agenda items, and
tighter monetary policy by the Federal Reserve.
The dollar's sell - off was also helped by investors betting on
tighter monetary policies by major central banks, bringing them in line with the Federal Reserve.
Not exact matches
«We expect the stagnation trend to continue and potentially accelerate next year, exacerbated
by lower oil prices,
tighter monetary policy and continued uncertainty on the geopolitical front,» noted Barclays economist Eldar Vakhitov in a recent report.
I noted a week ago that Bernanke had essentially eased
monetary policy by spurring a loosening of financial conditions via higher stock prices, lower bond yields,
tighter credit spreads, and a weakening of the U.S. dollar.
The notion is that
by pursuing a slightly
tighter monetary policy, the central bank would take out insurance against the risk that the rise in asset prices is a bubble and that its busting would be disruptive.
All the benefits of
tighter monetary and looser fiscal
policy have been threatened
by the actions of a president who seems oblivious to the potential outcome of the blunder he has made.
The broad set of Trump's fiscal measures and Republican legislative priorities should be supportive of a strong U.S. dollar, either
by boosting growth and
tighter monetary policy — or
by contributing to an improved trade balance (through looser regulation in the energy sector and / or border adjustments).
Former Fed chairman Ben Bernanke, in a speech to the American Economic Association in January, said that «excessively
tight near - term fiscal
policies have likely been counterproductive»
by weakening the recovery, especially when
monetary policy has less room to maneuver.
The dollar's sell - off was also helped
by investors betting on
tighter monetary policies... Read more
Looking backwards it means that over this period looser fiscal
policy would almost certainly have been offset
by tighter, or less loose,
monetary policy.
The growth acceleration that cancels the negative equity duration is the same growth that propels small - caps so much, putting them in a leading spot to rise with interest rates — especially since
monetary policy is not too
tight so that rising interest rates don't hinder the borrowing
by small companies too much.
But
tighter monetary policy was followed
by six years of strong growth and low inflation.