The Fed was on pace to normalize the policy this year by raising the cost of borrowing money to a level above inflation and withdrawing the stimulus program that has it buying and keeping trillions of US bonds on the balance sheet.
- But Jay Powell and Fed's police officers have completely reversed the course – announcing that they were not just interest rates, but would continue the bond negotiation program (at a lower level) for the foreseeable future.
Why is it bad: Analysts say the Fed's U-turn shows that the world's best economic minds are in danger.
- Global debt markets are also full of risky loans. The consumer debt is now growing larger outside the banks, including a lot of mortgages, credit card debt and student loan debt, which has grown into a pile larger than the housing house was before the financial crisis.
- Central banks and international aid institutions such as the IMF issue warnings and write down growth expectations worldwide.
- The US government bond yield reversed in March, a historically accurate recession indicator and dollar and Japanese yen have strengthened, a sign of fear and market uncertainty.
Why is it good: Fed's thought seems to do exactly what it was made to do.
- US stocks are roaring touching new all-time heights, joining a global stock rally.
- US .. GDP expectations for the first quarter have jumped from almost zero to more than 2.5% about an hour and a half.
- China's economic data has improved, and investors are beginning to see signs that world trade has settled and is ready for a comeback.
The change in monetary policy has split analysts' opinions:
- "I'm nervous," Lee Ferridge, head of multi-asset strategy on State Street, Axios tells. "I'm still concerned that we've responded to the Fed team without thinking," Why does the Fed switch? ""
- "The global economic recovery will last for a few years," Jim Paulsen, chief investment strategist at the Leuthold Group, says in an email. "We have complete political support from almost every corner of the globe without a single major economy in recession."
Be smart: Many fund managers are really bullish on the US economy and stocks, but the buying trends have not shown it. Instead of adding high-risk stocks or diving into emerging markets, as has usually been the case in increased confidence, property manager sells stocks or remains neutral, showing data.
- Reality Check: The dirty little secret in this year's stock market context is that it has got fuel from stock purchase coupons instead of buying real money investors. But it is now beginning to change.
Bottom line: There is no perfect answer here. U.S. Financial data has been mixed since the Fed is reversing and several investors have come to the conclusion that they did the right thing. But at some point, the world economy must be left alone, without artificially low interest rates and trillions of central bank stimulus. The big question is how far away we are from that point.