It is not a new or surprise policy but the Fed comments that low interest rates will likely be maintained through 2023 send a clear forward guidance message that clarifies that we are on dovish policy course. Although dissension is for an even more dovish forward guidance. Investors now have to adjust to this clarification and the choices are not overly attractive. Sure, continued Fed liquidity with the same level of Treasury and mortgage purchases provides support for risky asset purchases, but the law of unintended consequences suggests that too much of a good thing can lead to bad results.
The choice problem is simple. With Treasury pushed down to low levels for years, investors will not get any benefit from holding bonds. Equities will gain tailwinds from a low discount rate, but we are already at high valuations so these low rates will push markets further into bubble territory. Choose between rates pushed artificially low or invest with equities that are pushed artificially high. This is coupled with other themes of distortions or choices to undertake risks that forced upon investors because of traditional asset distortions.
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