Financial markets are living a charmed life now, with both stocks and bonds on the upswing. But dangers lurk, says Axel Weber, chairman of UBS, Switzerland's largest bank.
Monetary policy is headed in opposite directions in the United States and Europe, and that split will likely create instability in financial markets, the former Bundesbank president writes in the
Financial Times.
The European Central Bank (ECB) is expected to ease further Thursday in the face of weak economic data.
Editor’s Note: Pastor Explains His Biblical Money Code for Investing
"Two weeks later, the U.S. Federal Reserve will probably respond to strengthening economic data by moving in the opposite direction, tapering the pace of quantitative easing for the fifth consecutive meeting," Weber predicts.
"This is another sign of how monetary policy is diverging in the two largest economies, a trend that is set to shape funding markets for years to come."
And the Fed may raise interest rates in 2015, while the ECB keeps rates low, he notes.
So what's the impact on financial markets?
"Investors should prepare for more volatility this year," Weber suggests. "I see significant potential for volatility and setbacks on financial markets over the next few quarters."
Meanwhile, Fed policymakers themselves are worried that financial markets' current stability will lead investors to take on too much risk. The CBOE Volatility Index (VIX), which measures expected volatility for the S&P 500, has dropped to a one-year nadir.
"Volatility in the markets is unusually low," William Dudley, president of the New York Fed, said after a speech last week,
The Wall Street Journal reports.
"I am a little bit nervous that people are taking too much comfort in this low-volatility period. As a consequence, they'll take more risk than really what's appropriate."
Editor’s Note: New Warning - Stocks on Verge of Major Collapse
© 2025 Newsmax Finance. All rights reserved.