Global markets are today (Wednesday) braced for the most pivotal moment since the financial crisis, as the Federal Reserve prepares to raise interest rates for the first time in nearly a decade.
The US central bank is expected to increase interest rates from their current 0pc to 0.25pc range, in what George Osborne, the Chancellor, has called the most anticipated decision "in living memory". Despite the change being "priced in", traders will none the less be on edge as Janet Yellen, the Fed's chairman, outlines plans for future hikes.
Steven Hess, an analyst at ratings agency Moody's, said that there was a risk of a "disorderly reaction" if officials were unable to assure investors that it would tread carefully over the coming months. "The large emerging markets that will likely be most affected are those, such as Brazil, Russia, Turkey and to some extent South Africa, where severe domestic challenges have contributed to exchange rate and financial market instability," he said.
Bricklin Dwyer, a BNP Paribas economist, said that there was a "high chance" that things would not go according to plan. "The risk that things go wrong is greater than things going well," he said, as policymakers may find that the US economy is already slowing, and that a string of rate rises turn out to be too "aggressive".
Larry Summers, the former US Treasury secretary, told Bloomberg: "There are still substantial questions about the growth prospect, about the prospect of achieving the 2pc inflation target, about uncertainties in financial markets."
Anticipation of the shift by the Fed has prompted sharp adjustments in financial markets since the summer. An exit from very stimulatory policy
signals the end of a lengthy period of financial repair in the US, as the wounds inflicted by the 2008 crash have taken an unprecedented length of time to heal.
The Fed has repeatedly found its attempts to raise rates thwarted by external factors; firstly by severe falls in commodity prices, which have weighed down on inflation; and latterly by concerns this summer that global growth had faltered in emerging markets.
Yesterday, European bourses bounced back from two-and-a-half-month lows and oil prices rebounded ahead of the crucial Fed decision, with the FTSE recording its biggest daily gain in two months. The blue-chip index rose 2.45pc, while the DAX and CAC jumped by more than 3pc.