Nothing scary about diverging central bank policies

TWENTY one years ago, the world was a very different place. The Internet was unknown. Most mobile telephones just made phone calls. To watch a film at home required a video player and a tape. I had hair.

But in the world of central banks, there are some similarities to that bygone era; 1994 was the last time that the US Federal Reserve tightened policy as the European central banks eased policy. Policy divergence seems likely to return in December, with the Fed tightening policy and the European Central Bank (ECB) easing policy within days of one another. The days of central banks moving in sync are over.

In the US, inflation is up. Employment is up. Growth is up. The idea that interest rates should also move up is not terribly controversial. Market attention is now shifting from the timing of the first rate hike to the question of "what happens next?". The pace of future rate hikes is the new area of uncertainty. "Lift-off" with the implication of a rapidly rising, rocket-like trajectory to rates is almost certainly not going to happen. Several rate hikes, perhaps a quarter-point increase every calendar quarter, is quite plausible.