On three separate occasions since 2013 the US Federal Reserve sent shock waves through the global financial system when it tried to tighten monetary policy, and each time it was forced into partial retreat to halt the mayhem.

The Fed has since come to terms with its unwelcome role as the world's central bank, a monetary superpower that cannot set liquidity conditions for the US alone. The international blow-back into the US economy from any mistake is instant and brutal.

Over recent months the Federal Open Market Committee has been careful to take the global pulse before acting. It now hopes the coast is clear. Today's quarter point rise in the federal funds rate to 1pc has been so loudly signalled in advance that investors have already adjusted.

Emerging markets seem better prepared, so far able to shrug it off. China has restored confidence in its exchange rate regime. Capital flight appears to be under control. Europe's shift towards bond tapering reduces the risk of a rocketing dollar. "We're not overly worried about downside shocks," said Janet Yellen, the Fed chairman.

Yet nobody really knows whether the world can handle a total of six rate rises over the course of 2017 and 2018 as sketched in the Fed's 'dot plots' scenario.

"Our highly levered financial system is like a truckload of nitroglycerin on a bumpy road. Don't be allured by the Trump mirage of 3pc to 4pc growth and the magical benefits of tax cuts and deregulation," says bond guru Bill Gross from Janus. This is a year to hold onto your money, he tells clients, not to seek a return on money.

On the face of it, a 1pc rate is risibly low a full eight years into the economic expansion. It is deeply negative in real terms. Savings are being whittled away.

But we are not dealing with normal circumstances. The Atlanta Fed's Wu-Xia 'shadow rate'  suggests that the combined tightening so far this cycle is equivalent to thirteen rate rises, once you include the withdrawal of stimulus from quantitative easing and dovish forward guidance. If so, we may be near the end-game.

The Wu-Xia model and others like it show a relentless fall in the natural rate of interest over the decades. Each peak and each trough is lower. It is the deflationary consequence of a deformed world of over-capacity (China), under-consumption (Europe), excess savings (inequality), and lack of demand.  

Former US treasury secretary Larry Summers thinks the natural rate has dropped to minus 3pc in his grim vision of secular stagnation. Is he wrong? Have we put this episode behind us at last? We don't know.  

David Fuller's view

Do I believe these forecasts?  No, at least not in the near term. Nevertheless, AEP is a formidable financial journalist with great contacts and he can be prescient.  Therefore, why don’t I agree?  Because I don’t see bearish forecasts in the price charts, at least not yet.  Meanwhile, and I don’t mean this arrogantly, bearish forecasts from high-profile financial experts have been one of the most reliable indicators over the last eight years and counting. 

If stock markets are climbing a ‘wall of worry’, you know everyone is not long.  In fact, they may be trying to talk the markets down.  There are a lot of wobbly bears out there, only this time it is not due to global warming. Will the bears eventually be right?  Of course, but we all know that timing is crucially important.  

So, which charts am I talking about and what am I looking for?

Wall Street may be somewhat overstretched and expensive but it is holding its form and well underpinned, as shown by these indices: Nasdaq 100, S&P 500 and the Russell 200. S&P 500 Banks resumed their uptrend with Donald Trump’s election.  

For the first time in several years, the DJ World Stock Index is also performing.  So is the UK FTSE 100.

I could go on but you get the picture and neither the US Dollar Index or US 10-Yr Government Bonds are worrying investors with excessive rallies, at this stage.

Here is a PDF of AEP's column.