In the wake of “Brexit,” central banks reasserted themselves over markets in a big way in Q3, sending bond yields to historic lows. The recent wave of populism in the developed world is targeting institutions that have been supportive of capital markets for the better part of 70 years. To the extent these political movements prevail, they would likely carry negative economic consequences.

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Events in Q1 took the Fed off message and “Brexit” further complicated its story Given the limited set of policy tools, the Fed seems to want to play it safe and is reluctant to raise rates until it has strong evidence of inflationary pressures

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The Central Bank divergence story – the idea that instability in capital markets would be driven by diverging monetary policy among the world’s largest economies - is alive and well but evolving, with more pain in store for interest-rate sensitive investments

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The inflation conundrum dogging the US economy right now has a lot of observers scratching their heads. The economy clocked 5% real GDP growth in Q3:2014 and an estimated 2.6% in Q4. Unemployment at 5.6% is at levels that have historically begun to generate wage inflation, but there is little to speak of. Explanations range from labor market slack to deflationary pressures from abroad, but economists at the Fed are pointing markets to a simpler answer: zero interest rate policy.

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