Big Spending Makes Financial Markets Matter Less
No matter how disruptive the shock -- from GameStop to Archegos -- the economy has kept chugging along as a new growth strategy takes shape.
Market shocks like GameStop don’t seem to matter much to the economy these days.
Source: Bloomberg
A lesson learned after the 2008 financial crisis was that financial market shocks can turn into real economy shocks if they're not nipped in the bud by policymakers. That led to a decade of the public grudgingly accepting — but resenting — an environment of slow economic growth where central banks were seen as the first responders for any little disturbance in financial markets.
Now, here we are in a quarter with plenty of financial market shocks while the Federal Reserve has done nothing to step in, and yet economic-growth expectations are stronger than they were at the end of 2020. The reason — which is a glimpse into the future for our shifting policy approach — was the trillions of dollars of spending passed by Congress that promises to expand the economy regardless of what's happening in financial markets.