Not so long ago, only a year or two ago, investors eagerly devoured any bad news about the US economy and digest it in new purchases of stocks, bonds and generally whatever is around. The reason – the expectation that in the absence of signs of recovery the Fed will continue to print money to pour them into the markets.
Now somehow flawed logic turned, but still sounds just as extravagant. When still on 16 December the US central bank (already long excluded printing) announced its first tightening of monetary policy by nearly 10 years by raising its key interest rate by 0.25 percentage points to 0.5%, the markets again interpreted the news as positive. The reason – as the Fed does, then the economy is now stable enough.
Of course, there were many factors that contribute to no shocks – lifting was expected, communicated for months and is largely taken for granted. Which does not mean that its effects, and already audited by the markets next steps will not have side effects that are visible will in time.
But now it seems that one of the biggest fears of non-conventional measures of central banks is true. Namely that flooded with cheap money markets have lost their ability to adequately take account of the risks.