Coming Rate Shock Will Be Different But No Less Fraught

The sprint to raise interest rates to levels that cool demand will give way next year to an elevated saunter. The coming phase of tightening will be more nuanced, but no less fraught than what we’ve seen until now. The cost of a misstep will be considerable because the global economy will begin this subsequent stage in mediocre shape.

The main task of central bankers will be to convince people that smaller hikes won’t necessarily lead to cuts. They may well presage a pause, but officials will be at pains to say their task isn’t complete. For investors, this will require attentiveness to subtleties: sifting the data that's most important at any one given moment, which central bankers are talking and how much they matter. Because the path of borrowing costs will become less predictable, there are also significant implications for currencies. Does the dollar's uber-rally continue, can the beleaguered yen get some relief, will China have to work harder to cushion the yuan’s decline?