Can the world expect a “soft landing” as Covid stimulus and lack of war fuels inflation and drives up the cost of debt? In its pandemic response, the US Fed more than doubled its assets. No less dramatic was the non-dollar monetary expansion. Crisis lending by central banks exceeded $10 trillion by the end of 2021, with a global economy expected to reach $100 trillion in 2022. Interest rates were set super-low, so that cash could be pumped in rather than striking the balance of savings and investment. It is no surprise that private property values have risen, and now the easy money reversal seems to be causing a major setback.
Bond prices were capped due to the fact that yields could not be too negative, but other assets went up. The boom now looks volatile, as inflation continues to rise, while bonds are in a yield recovery phase, market risk becomes reassessed, non-hedged bets become severe, and credit quality weakens. Thanks to the terrible rear-guard hike in policy rates. Financial markets are likely to suffer some shocks, incidental flights of capital to safety that could affect assets in emerging markets such as India, such as outflows. After the largest fiat money creation ever in history, we must be prepared for volatile times.