It is too early to either say why global markets have suddenly reversed course or whether the recent tumble is just a bull market correction rather than something deeper. What is known is this. Global monetary policy is tightening. The US Federal Reserve seems to be on course for three rate hikes this year, and it remains to be seen when Europe and Japan begin to withdraw from their versions of quantitative easing. Bond yields have spiked. Wage growth in the US is perhaps rising at the fastest pace since 2008—and economists have yet to figure out whether the effect will be inflation or a profit squeeze. Policymakers in the developed world will have to walk the fine line between preventing markets from tumbling further and ensuring that the underlying economic recovery is not halted in its tracks because of a financial shock.

(Live Mint)