(Bloomberg) r More than two years into the most aggressive Federal Reserve monetary tightening in four decades, the big surprise is that the world hasn’t fallen over.
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While US interest rates at 23-year highs are causing pockets of pain, there’s nothing like the systemic problems that so often wrecked expansions in the past. The Fed has held the policy rate at 5.25% to 5.5% for about a year and is expected to leave it unchanged at their two-day policy meeting this week.
With Friday capping a run of steady economic data, investors have rolled back their expectations for rate cuts again, with only one — or maybe two — now expected by the end of the year.
Financial markets continue to digest what Chair Jerome Powell calls “restrictive” policy very well. The three US regional-bank failures of spring 2023 are most notable for how little they affected the economy and how quickly regulators were able to halt any contagion. Credit spreads remain tight, even among riskier bonds, and volatility is low.
In other words, something different is afoot this time, and it is catching the attention of the Federal Open Market Committee — the Fed panel that sets interest rates — and they are likely to take up the topic of easy financial conditions again this week. Here’s a look at a trio of unusual features that help explain why policy may have less bite:
Privatization of Risk
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