COMMENT-Central bank policies may have very negative consequences
Central banks easing policy to boost their economies are at the same time stoking inflation that they are struggling to control, a paradox which may have very negative consequences for financial markets.Since 2008 the remedy for almost every problem confronting policymakers has been to spend their way out of trouble. But not only has that boosted stocks to record levels, it has supported inflation that remains above target in most major economies. Yet central banks are easing policy, or hoping to do so.Stocks have done what stocks always seem to do, rising further, with the MSCI world equity index setting a record high this month. But there has also been a big rise in gas prices that suggest inflation will rise.Should OPEC delay its plan to increase supply in April, the chance of a more sustainable decline in prices may evaporate, and central banks may be forced not only to abandon plans to cut interest rates, but also to consider raising them.Stocks and other risky assets like Bitcoin that are at the peak of extremely big rises are apt to reverse. Even a minor reverse of their previous gains would appear to be an extremely risk averse event for traders who are mainly looking in one direction.In such circumstances the dollar could rocket, suppressing inflation in the United States and boosting it elsewhere, forcing interest rates higher, further undermining stocks.Investors focused on euro may find it easier to hedge. For more click on