Five Decades Of Systemic Shocks And Policy Responses

Via Pictet, With the decision of the Federal Reserve to continue its policy of asset purchases (QE) as long as US employment remains depressed, we can say that inflation targeting as a tool of monetary policy, introduced in the early 80s under Paul Volcker, has finally been buried. Central banks are now moving towards a policy of targeting asset prices and other economic variables, primarily nominal GDP. The consequences of this monetarist revolution on asset price formation are difficult to assess. However, we cannot overemphasise the potential disruption to the correlation and volatility regimes to which investors have become accustomed. In such conditions, proven investment strategies may prove obsolete. More than ever, investors will need to be able to challenge and fight against preconceived ideas. Lastly, and fundamentally, it is to be hoped that the policy of quantitative easing (...