Dollar gets a little lift from the hawkish rhetoric, EUR/USD down at 1.4128.
- Discussion on normalisation of US policy likely to return as key issue in 2011
- Natural debate is how and when exit should begin, additional uncertainty has clouded picture
- Process of normalising policy will still leave unprecedented accomodation on the table
- US growth prospects “reasonably good” for 2011
- Relative to last Summer have improved, anecdotal reports more bullish
- Global, domestic events present considerable uncertainty, can be resolved
- Key sources of uncertainty include Mid East and North Africa, Japan disaster, US fiscal situation. European debt crisis
- If risks escalate, how and when to start policy normalisation would become less clear
- Most likely that all four risks to be resolved without becoming global macro shocks
- QE removed by returning balance sheet to normal size over time, policy rate begins to approach levels associated with moderate expansion
