ECONOMIA INTERNACIONAL THE ECONOMIST
M A R K E T S H AV E FA L L E N B E C A U S E T H E E R A
OF FREE MONEY IS COMING TO AN END TIGHTER MONEY UNCERTAINT Y
A
MEANS
fter the interestrate cuts and hectic central-bank bondbuying of early 2020, investors came to believe that central-bank stimulus would pretty much last for ever. Today, however, as investors come to terms with the end of the era of free money, financial markets are 80
FINANCIAL
VOL ATILIT Y
in spasms. Markets now expect interest rates to increase four times in 2022 as the Fed fights the inflation that has lifted growth in the consumer-price index to 7%, a level barely imaginable a year ago. On January 26th the Fed confirmed that it would end its bond-buying programmeand signalled that it would probably raise rates soon. This hawkish shift is the most
AND
ECONOMIC
important among many to have taken place in the world’s central banks in recent months. But it has only recently begun to bite in asset markets. After reaching a vertiginous high of nearly 40 times cyclically adjusted earnings at the turn of the year, the s&p 500 index of stocks has fallen by 9% in January (markets in Europe and Asia have fallen too, though by less).
