Three significant changes to the macroeconomic policy regime in advanced economies, compared to the post-global financial crisis period, have unfolded in the last two years. First, fears of a chronic insufficiency of aggregate demand as a growth deterrent prevailing after the 2008 global financial crisis, have been superseded by supply-side shocks and inflation. Second, as a result of the first change, the era of abundant and cheap liquidity provided by central banks has given way to higher interest rates and liquidity squeezes. Finally, because of the previous changes, there was a strong devaluation of financial assets in 2022. There are now fears about multiple possibilities of financial shocks ahead.
Three significant changes to the macroeconomic policy regime in advanced economies, compared to the post-global financial crisis period, have unfolded in the last two years.
In its May 15th meeting, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve (Fed) lifted its benchmark policy rate by 0.75% to 1.50%–1.75%, the most significant increase since 1994. The central bank also signaled an additional increase of 0.75% ahead. FOMC members also raised the median projection for the Fed funds rate to a range between 3.25% and 3.50% next year. In addition to hikes in basic interest rates, liquidity conditions in the US economy will also be affected by the shrinking of the Fed s balance sheet starting this month. The "quantitative easing" (QE) that resumed vigorously in March 2020, in response to the financial shock at the beginning of the pandemic, will now give way to a "quantitative tightening". How complementary - or substitute - will be those movements in interest rates and balance sheet downsizing? What are their likely consequences on capital flows to emerging markets?
The Russian invasion of Ukraine caused international investors to pause for thought on where their international investments reside. Are they seeing China in a new light?
The US economy led a global recovery from the coronavirus-induced slowdown, with its “aggressive” fiscal stimulus helping it to rebound at a quicker pace than it did after the 2008 financial crisis, said the Institute of International Finance. The world’s largest economy made the most complete recovery, compared with other Group of 10 industrialised economies, .