The overwhelming focus of market attention on monetary developments is unprecedented. Every report, speech or commentary from the US Federal Reserve is under the analyst’s microscope.

Last year much of the focus was on when the Fed would begin to reduce its quantitative easing asset-purchase programme. The consensus view was that the central bank would begin unwinding, or tapering, in the later part of 2013. This was correct, but the anticipated market consequences generally were not. While some feared that financial markets would be threatened by such actions, developments subsequently have been quite the contrary. Stock and bond prices have actually increased and market volatility has largely diminished.

Many market participants are looking for the Fed to return to policies of a more traditional kind. It is not entirely clear, however, what this would involve. Would it be a return to “bills only”, whereby the Fed eased or tightened by engaging in the purchase and sale of the US Treasury bills? Would it consist of a return to a sort of monetary targeting such as the growth of money or credit? Or would it entail leaving it to the markets to deal with excess behaviour, whereby those who did well would prosper and those who did poorly would fail?