Monetary policy, or primarily the manipulation of Interest Rates, is the framework by which Central Banks target economic growth and inflation. In order to reverse the 2008 credit crisis of the Great Recession, central banks have cut interest rate policies to unprecedented historic depths.
As the Fed has attempted to restore interest rates closer to pre-Crisis levels, stock markets have trembled. In an economic downturn, Central Banks attempt to revive credit paralysis by cutting interest rates. According to the International Monetary Fund, “Severe recessions have historically required 3–6 percentage points cut in policy rates.”
With the highest major central bank interest rate being the Federal Reserve at a mere 2.5%, and despite being ten years into an equity bull run, traditional Monetary Policy will inevitably struggle in the event of another severe recession. As rate cuts alone were insufficient to reverse 2008’s Great Financial Crisis, central banks of the world devised new forms of Unconventional Monetary Policy.
Alongside Quantitative Easing, multiple central banks set Interest Rates into negative territory, for the first time in history…
