According to a number of Fed heads speaking this week, their view is that the pandemic is just about over, and as a result, it is now time to very gingerly shift toward removing monetary accommodation and mopping up the excess liquidity. In last week’s Economics Weekly, we similarly argued that we are now at the turning point where monetary conditions are as easy as they are going to get during this cycle, and we looked through the prism of the Financial Conditions Index.
In this week’s Economics Weekly, we look at further evidence that we are at just such an inflection point for the Fed, highlight a number of measures of excess liquidity, and examine the stock market’s reaction during this part of the cycle. Once again the message seems to be that the bull market is far from being over, though in the past such transition periods have also been associated with temporary bouts of heightened volatility.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.