It’s pretty rough out there in financial markets. Stocks are still falling, notwithstanding the odd counter rally here and there, and yields are still rising, leaving investors with little in the way of a place to hide. I think it is relatively simple to explain what’s going on, in general terms. Before the pandemic, markets were propelled higher by low inflation, low bond yields and plenty of monetary accommodation. Running the economy hot was not just relatively cheap—in terms of the classic trade-off between stocking growth and employment and inflation—it was the right thing to do. I mean, you wouldn’t want unemployment to rise, would you? The initial roaring rebound in markets from the initial Covid shock in spring 2020, promised a quick return to “normal”. It didn’t last.
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