By debating the size of their balance sheets, central banks are showing for only the second time since 2008 that they may be worrying about our addiction to QE. QE can be credited with unblocking the system in 2009 and keeping it oiled in 2020. But, by prolonging distortions and widening disparities, it looks too-imperfect-a tool to sustain. The road to ‘policy normal’ as gauged by historical standards is likely to be cut off. The frustration for central banks remains that recoveries since 2009 have been largely output driven with insufficient demand inflation to trigger their usual reaction-functions. Maintaining the reflation trade will be predicated to a large extent on further job gains and/or stimulus, especially fiscally. But, with recoveries on track, the opposite looks more likely.
The market environment this year has proven tricky to navigate, but today’s credit market offers a compelling entry point into global credit for investors focused on long-term, fundamentally driven analysis.