First published on StocksInValue on the 23rd September 2015

The US Federal Reserve didn’t lift its cash rate last week and equity markets responded badly. Publicly the Fed pointed to poor global growth and financial market volatility but the mismatch of banking sector assets and liabilities (borrowing short and lending long) probably gave the Fed cause for concern about the adjustment process to higher interest rates, and stayed its hand.

But the US economy is not weak enough to need interest rates at current levels, meaning the Fed has kept rates too low for too long. How to deliver gradual rather than sudden rises in long bond yields is a problem for the central bank, which might yet have to simultaneously increase the cash rate and buy long bonds, through more quantitative easing, to restrain yields from rising too quickly.

Over the last month the ASX has traded between 5,000 and 5,200. What could lift the index out of this range? Business confidence could get a lift from the change in prime minister but from there many policy improvements are needed: a proper tax enquiry, a proper vision statement for the economy, infrastructure stimulus and a recognition Australia should focus on inbound tourism in coming years.