In determining the future path of interest rates, the FOMC will be guided by the incoming data on both output and prices, so let’s begin by reviewing recent developments.
Some individual commodity prices have risen by much more. Similarly, we have seen a preparedness to take foreign currency risk, and flows into emerging markets involving both foreign currency and credit risk have increased. Again, risk appetite has not returned to the heady days of the mid 2000s, but nor should it.