Are we back to “normal”? That is a question many investors might now ask, after the Federal Reserve cut interest rates by a whopping 50 basis points this week.
After all, ever since the 2008 crisis, finance has been in a deeply abnormal state: first, central banks slashed rates to stave off depression, then they doubled down when the pandemic hit — before finally raising in panic when inflation exploded. But now the Fed is cutting rates in response to slower growth. This looks more like the pre-2008 financial cycles. No wonder markets are rallying in relief.
But before anyone feels too giddy, they should remember one crucial point: we do not yet fully understand the long-term consequences of those abnormal quantitative easing experiments. For cheap money has distorted finance in numerous half-hidden ways — and created some striking future risks.