There is some limit beyond which it becomes totally unreasonable to divorce highly elevated asset prices from sluggish fundamentals.
~ Mohamed El-Erian, The Only Game In Town
The Federal Reserve’s meeting results will be in focus today. According to consensus expectations, there’s no chance of the Fed raising the interest rate at this meeting, but investors will be watching the language of the FOMC’s statement carefully.
In my view, the recent shift in market sentiment with respect to central bank policies is very important. Until recently, investors steadfastly believed that continued QE programs would support markets, no matter what. “Don’t fight the Fed,” buy the dips – these were considered almost-certain ways to improve performance. But after the ECB’s December-2015 unimpressive policy tweak (and subsequent January market selloff), the uncomfortable idea that central banks’ monetary policies are reaching their limits began to draw increasing attention.
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