What will the growth of the world's central bank balance sheets lead to?

The balance sheets of the US and EU central banks are at historic highs for 2020, having almost doubled. The injections of money by the Fed and the ECB were designed to prevent the economy from going into an even deeper slump in the wake of the COVID-19 crisis. In part, this measure paid off: without this substantial support, the economic consequences of the pandemic would have been more severe. However, things turned out differently than financial regulators had expected.

Since the beginning of the crisis, the Fed has injected several trillion dollars into the US economy. In particular, the latest rescue package — worth $1.9 trillion — was approved this year. At the same time, the Fed has cut the federal funds rate to zero. The US authorities were guided by an understandable goal — stimulating demand to prevent the economy from collapsing. This was partly achieved, but the market reacted in its own way. The Americans who stayed at home did not want to spend the government's financial support on goods and services — instead, they put the money into the stock market. The result: its unprecedented growth against a sharp fall in corporate earnings. As a result, the spread — the difference between the profitability of companies and the value of their shares — broke all records. How long will this situation last, and what is next?

Read the full article on the Vedomosti website.