Dollar gets a little lift from the hawkish rhetoric, EUR/USD down at 1.4128.

  • Discussion on normalisation of US policy likely to return as key issue in 2011
  • Natural debate is how and when exit should begin, additional uncertainty has clouded picture
  • Process of normalising policy will still leave unprecedented accomodation on the table
  • US growth prospects “reasonably good” for 2011
  • Relative to last Summer have improved, anecdotal reports more bullish
  • Global, domestic events present considerable uncertainty, can be resolved
  • Key sources of uncertainty include Mid East and North Africa, Japan disaster, US fiscal situation. European debt crisis
  • If risks escalate, how and when to start policy normalisation would become less clear
  • Most likely that all four risks to be resolved without becoming global macro shocks
  • QE removed by returning balance sheet to normal size over time, policy rate begins to approach levels associated with moderate expansion