Once upon a time, economics truly lived up to its moniker as the “dismal science” as central bankers sought to control interest rates and fiscal policy in a bid to control inflation. But having experienced two epoch-defining financial crises in 2008 and 2020, policymakers are once again getting behind former US president Richard Nixon’s proclamation that “We are all Keynesians now”, as central banks resort to quantitative easing to keep their economies afloat. The last thing on their minds is inflation, as interest rates were pushed down to near-zero levels in a bid to jump start sputtering economies. 

However, repeated aggressive use of monetary expansion may have created a permanent low interest investing environment. While the periods between 1990 to 2007 has largely seen interest rates hovering within a 2% to 5% band, Federal Fund rates in the wake of the 2008 Global Financial Crisis peaked at 2.27% in 2018, as the global economy was then enjoying some semblance of recovery before being stymied by first the US-China trade war and then, the Covid-19 pandemic. The Fed has guided for rates to be near zero till 2022. The longer low rates are maintained, the more likely they will be to become a permanent fixture of the global economy. 

On the surface, this appears to be a boon for investors, who can now binge on cheap, plentiful credit to unleash their animal spirits. The S&P 500 hit record levels as investors placed bigger bets. All this has occurred while main street languishes with high unemployment and high fatalities as a direct result of the Covid-19 pandemic. And this growth is not yet finished — a technical analysis note by Bank of America on Sept 28 reckons that the S&P 500 could rise 30% to 3,700 to 4,300 points despite a September correction for US equities. 

To continue reading,

Sign in to access this Premium article.

Subscription entitlements:

Less than $9 per month
3 Simultaneous logins across all devices
Unlimited access to latest and premium articles
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)

Stay updated with Singapore corporate news stories for FREE

Follow our Telegram | Facebook