By James Saft
(Reuters) – With the European Central Bank and U.S. Federal Reserve pulling the same way, global interest rates will be lower for longer, feeding an ongoing rally in risky assets.
But since monetary policy has a bigger impact on financial markets than the real economy – arguably, anyway – the bigger the paper gains get, the more acute the risks become.
The ECB surprised virtually everyone last week when it cut its key lending rate to 0.25 percent, reacting to an uncomfortable slide in inflation and an equally vexing rise in the value of the euro.
Following on the Fed’s decision not to slow bond purchases in September, this marks the second time in less than two months that a major central bank has shocked investors with dovish policy.
And to judge from the noises coming out of the Fed, we are running out of excuses for being surprised.