Sustained economic growth finally appears to be stoking inflation and paving the way for central banks to normalise their monetary policy. Are bonds dead? Is it too late to get into stocks?

SINGAPORE (Feb 5): The Federal Open Market Committee, meeting for the last time under outgoing chair Janet Yellen, left the federal funds rate unchanged on Jan 31 while paving the way for rate hikes under Yellen’s successor Jerome Powell. Yellen’s four-year term has been characterised by a gradual tightening approach — five hikes of 25 basis points (bps) each and a measured reduction of the Fed’s balance sheet. Powell is expected to pick up the pace. The FOMC’s latest statement says inflation is expected to “move up this year”, and that economic conditions “warrant further gradual increases in the federal funds rate”. Market watchers say the language implies a more confident outlook for the economy and a commitment to a higher interest rate environment.

Other central banks are beginning to act. Last month, Bank Negara Malaysia lifted its overnight policy rate by 25bps to 3.25%. This was the first rate adjustment since July 2016, when the OPR was revised downwards to 3% to pre-empt headwinds from the UK’s vote to leave the European Union. “With the economy firmly on a steady growth path, the monetary policy committee decided to normalise the degree of monetary accommodation,” BNM says in a statement.

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