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Tina Byles Williams This report was authored by Tina Byles Williams, CIO of FIS Group, Inc., Philadelphia. The full version can be downloaded here.

There is no shortage of prognostication on which assets/ strategies will be most/least impacted as the Fed and the BOE become less accommodative, and how they will be affected. How we answer both questions will be critical to performance over the next year or so. This paper evaluates the likely path and impact of Fed tightening with specific focus on the counterbalancing effects of asynchronous monetary policies globally and the likely impact of Fed tightening on EM risk assets.

We begin with an evaluation of the last two tightening cycles (1994/1996 and 2004/2006). For both cycles, EM risk assets stumbled both before and after the anticipated tightening. In this paper, we focus on the mid-1990s tightening cycle (as opposed to the 2004/2006 tightening cycle) as the most useful guide because today, as then, the U.S. economy was recovering from a credit-induced bubble (in the early 1990s, it was the savings and loan crisis of the late 1980s). Despite aggressive (though more traditional) monetary stimulus, that recovery was also viewed with substantial skepticism. The global context was somewhat similar in that in the first half of the 1990s, Japan, whi......................

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