Filmed by Petros Gioumpasis. Produced by Josh de la Mare.
Normalisation is over. Or at least, normalisation has been put on hold. That was the message from the Federal Reserve on Wednesday.
Until recently, it had looked like the Fed intended to tighten monetary policy in 2019. The chair of governors, Jay Powell, had even once mentioned the word "autopilot" about the Fed's policy. So it looked like interest rate rises and a continuing scaling down of the Fed's big balance sheet.
That has now changed. Interest rate rises are unlikely anytime soon. And the Fed has communicated that it will look at the data as they come in as it decides what to do with its very big balance sheet of securities. Market reaction has been very positive, with US stocks jumping on the announcement.
So why the change? The US economy still looks strong. The impulse from the tax cuts from about a year ago are still pushing growth ahead. Jobs are being added at the same pace as they had for many years. Inflation is about normal.
The problem is rather that there are signs of slowdown in the rest of the world, and that could impact the US, too. Just in the last few days, we've had confirmed that eurozone growth slowed abruptly at the end of last year. There are also danger signs from China, where growth has also slowed and the latest manufacturing numbers are pointing to a continued deceleration.
Add to this the continued uncertainty over what is going to happen to the trade conflict between the US and China, and it's clear that there are large moments of uncertainty in the global economy. And the Fed knows that that could hurt the US economy as well.
But there's something a little bit awkward. President Donald Trump has been calling loudly for the Fed to take it easy on monetary policy. And there's nothing a central banker likes less than looking like they're being told by politicians what to do.
But that's no reason not to do the right thing. And even a stopped clock shows the right time twice a day. It's no surprise that Donald Trump, a man who built his career on unsustainable construction debt, likes low interest rates.
In fact markets had been expecting the Fed to change course for some time. All these warning signs started coming in in the late summer, early autumn of 2018. And by December you saw a big shift in market expectations of future Fed monetary policy, from expecting one or two interest rate rises over 2019 to making it look most probable that there'd be no rises at all.
That was in early December. So in one sense, the Fed is just catching up two months late.
So where are the global economy and the US economy headed in 2019? Well, the only certainty is that there's a lot of uncertainty. I think that we could still have quite a good run, at least if, as the Fed has done now, central banks and other policymakers make clear that they will try to insure against the big downside risks by letting stimulus flow a little bit longer, a little bit further.