“Monetary policy normalisation” is a wonderfully reassuring phrase. It seems to hint that the mispricing of risk that has characterised markets since the financial crisis may soon be a thing of the past.
Maybe it even suggests that the curtain will come down on the misallocation of capital that has resulted from central banks’ ultra-low interest rates, a significant contributory factor in the developed world’s dismal productivity record since 2008. But think again. There are good grounds for thinking that mispricing of assets is not just down to freakish monetary policy.
For a start, the proportion of investors’ capital that is price-insensitive has never been higher. Exhibit A in support of this assertion is the UK inflation index-linked gilts market.