We have an uneasy peace on our hands. A year ago, world markets began to fight the Federal Reserve. Only now does it appear that they have reached a truculent truce, with honors roughly even: Stocks are at an all-time high, while the U.S. economy — having lost some steam — may still manage to avoid a recession.
How did we get here? To rewind: By late 2018, Jerome Powell, recently installed as Fed chairman, had made clear that he wanted to continue shrinking the huge balance sheet of assets the Fed had acquired to fight the crisis, with a steady unwind that was meant to progress “on autopilot.” He also intended to keep raising the bank’s target rate, as he sought to normalize monetary policy and guard against the risk of asset-price bubbles. Traders had none of it, and their rebellion prompted a series of tantrums in both the stock and bond markets. By the close on Christmas Eve, the S&P 500 Index had fallen slightly more than 20% from its recent peak, taken by many as the definition of a bear market.
