It must be a strange experience, being a central banker these days. Ever since the financial crisis of more than a decade ago, central banks have had to reconcile two opposing goals — both of them self-imposed.
How afraid should investors be of the end of quantitative easing? Judging by recent comments, but also by the markets’ reaction until now, not too afraid.
Stock markets swooned again last Friday, when the US jobs report showed the number of jobs created in January was well below expectations, at 151,000 compared with the 190,000 forecast by analysts.
Investors can no longer find comfort in turning bad news into good news, as they once did because any piece of bad economic news meant the Federal Reserve held interest rates rather than hike them.
Many in the markets are looking with apprehension at this coming Wednesday’s decision by the Federal Open Market Committee (FOMC), wondering when will the Fed finally pull the trigger on raising the interest rates – or rather, “normalising” an abnormal situation that has lasted since the financial crisis hit in 2007.
Tuesday’s sharp drop in global stock markets doesn’t make much sense taken in isolation. But the warning signs had been accumulating for a while.
The key question is: is this the beginning of the end of the bull market, or is it just another wobble?