Central Bankers Panic over Exuberant Financial Market ‘Fragility,’ Warn Risks Are ‘Underestimated’
The comments below are an edited and abridged synopsis of an article by Tyler Durden
It’s bad when central bankers are warning that the monster they’ve created is out of control.
As stocks explode higher in the face of declining earnings and collapsing macro-economic data, policy makers from the world’s central banks are suddenly raising cautionary flags at the potentially unsafe investing environment stoked by their efforts to flood economies with ultra-cheap money.
The Fed, the ECB, Riksbank and Bundesbank all issued warnings in November.
Most notably, Bloomberg reports that the spate of recent financial stability assessments began November 15 with the Fed, which warned that low rates could encourage riskier behaviour, such as eroding lending standards.
A prolonged period of low rates could also “spur reach-for-yield behaviour, thereby increasing the vulnerability of the financial sector to subsequent shocks,” it said.
However, despite central banks’ qualms about side effects, there’s little sign that they’ll do anything more than issue warnings. The Fed, the ECB, the Bank of Japan and the People’s Bank of China are all starting to provide more easing, which has contributed to a bull market in everything in 2019.
Standard Chartered CEO Bill Winters warns that the Fed’s recent difficulty in calming the repo market is instructive.
“We haven’t really had a test of the market, post the financial crisis,” Winters said. “I’m concerned that there’s a little bit more fragility in there than we’re aware.”