Different paths: the effects of ECB/Fed policy divergence

The start of 2016 has produced extreme volatility in capital markets. While the finger has been pointed at many culprits, from oil prices to China and European banks, one plausible driver has surely been the divergence of monetary policy between the Federal Reserve (Fed) and the European Central Bank (ECB). In this article we examine why the US and eurozone central banks are embarking on different paths, how sustainable this is in a world of growing headwinds to global and US growth and what the implications for capital markets might be for the remainder of 2016.