The European Central Bank and Federal Reserve have begun the difficult task of moving monetary policy toward a path commensurate with healthy economies.
There is an old saying that “all roads lead to Rome,” which literally means that during the time of the Roman Empire every road led to the imperial capital city. Transformed by history, the expression has been generalized to mean that all roads, all paths and activities, radiate from the center of things.
In the world of global markets, the last nine years have been governed, for the most part, by central banks, and by central bank financial largesse, commonly called liquidity or accommodation. Trillions of dollars have been injected into sovereign debt, corporate debt, mortgage-backed assets and even ETFs, to jump-start global growth. With interest rates near zero and lower, the global economy has been lifted out of stagnation, and with fiscal stimulus introduced in the United States, estimates for U.S. growth continue to be upgraded. Although the “synchronized global recovery” that characterized the world’s economy last year has been modified, the European Central Bank (ECB) and the Federal Reserve have begun the difficult task of moving monetary policy toward a path commensurate with healthy economies.
We’re in a new environment that could shift if markets sense the Fed is making a policy mistake. This new backdrop calls for caution and selectivity, as companies now must earn investor approval as markets adjust. This could create more risk and volatility, as the road to normal proves to be anything but.
Read Quincy Krosby’s Q3 2018 Market Commentary: “The Road to Normal”
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.