Differences in monetary policy

Because of the lack of effective internal demand and the relative stability of prices in international commodities, inflation in the United States and the euro area remained within the target range of 2 percent. Prices in Japan stopped falling, but any rises were limited.

Following Japan’s implementation of aggressive quantitative easing to hold down credit interest rates in April, the European Central Bank (ECB) announced a surprise rate cut in early November. The Fed also said that even after exiting QE, it will maintain benchmark interest rates close to zero in the long term.

In contrast, inflation rates in emerging economies remained high. Despite the overall downturn in international commodity prices, but impacted by factors such as structural problems and the currency devaluation, consumer price increases in Brazil and Russia fluctuated at a high level between six and seven percent.

India’s CPI saw a double-digit rate increase that continued for eight consecutive months. To prevent inflation, central banks in some emerging economies continued to raise interest rates, but the measure was largely ineffective.

The U.S. government shutdown

Following the tug of war over avoiding the "fiscal cliff" in early 2013, the bi-party budget and debt ceiling deadlock led to the U.S. government shutdown in October, increasing risk of debt default.

After a 16-day federal government shutdown, the two parties reached a compromise on the fiscal impasse. But the program has not bridged the fundamental differences between the two parties on the issue of deficit reduction. It only maintained government services and postponed resolution of the debt ceiling to January 15 and February 7 2014 respectively.

Analysts believe that future negotiations between the parties might remain deadlocked, leaving the risk of a debt default and a government shutdown early next year.
The consequent uncertainty will once more impact market confidence and the U.S. economic outlook.