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Illustration: Aïda Amer/Axios

There are two contradictory and ultimately irreconcilable stories playing out in the global economy right now.

  • Stocks are rising and investors have publicly become very bullish, but bond and currency markets are showing worry about the prospects for economic slowdown or even a recession.

What's happening: Both the market exuberance and trepidation can be traced back to the Federal Reserve's flip-flop on whether to raise interest rates.

The Fed was on pace to normalize policy this year by raising the cost of borrowing money to a level above inflation, and withdrawing the stimulus program that has it buying and holding trillions of dollars in U.S. bonds on its balance sheet.

  • But Chair Jay Powell and policymakers at the Fed have completely reversed course — announcing that not only were they done raising rates, but they would continue the bond buying program (at a lower level) for the foreseeable future.

Why it's bad: Analysts say the Fed's U-turn shows that the world's top economic minds see danger.

  • Global growth is slowing to a halt in much of Europe and Japan; and Canada, Australia and New Zealand may be headed into a recession this year.
  • Global debt markets also are littered with risky loans. Consumer debt is now increasingly held outside of banks, including lots of mortgage debt, credit card debt and student loan debt, that has grown to a pile bigger than the housing bubble was before the financial crisis.
  • Central banks and international aid institutions like the IMF are issuing warnings and writing down growth expectations around the globe.
  • The U.S. Treasury yield curve inverted in March, a historically accurate recession indicator, and the dollar and Japanese yen have been strengthening, a sign of fear and uncertainty in the market.

Why it's good: The Fed's rethink looks to be doing exactly what it was designed to do.

  • U.S. stocks are roaring, touching new all-time highs, joining a global rally in equities.
  • U.S. GDP expectations for the first quarter have jumped from near zero to more than 2.5% in about a month and a half.
  • China's economic data has improved and investors are starting to see signs that global trade has bottomed and is poised for a comeback.

The change in monetary policy has split analysts' opinions:

  • "I’m nervous," Lee Ferridge, head of multi-asset strategy at State Street, tells Axios. "I’m still concerned that we’ve reacted to the Fed hold without thinking, 'Why did the Fed switch?'"
  • "The global economic recovery will persist for another few years," Jim Paulsen, chief investment strategist at the Leuthold Group, says in an email. "We have full-out policy support from almost every corner of the globe without a single major economy in recession."

Be smart: Many fund managers are genuinely bullish on the U.S. economy and stocks, but buying trends haven't showed it. Rather than adding high-risk stocks or diving into emerging markets, as has typically been the case during times of increased confidence, asset managers are selling stocks or staying neutral, data shows.

  • Reality check: The dirty little secret of this year's stock market rally is that it has been fueled by share buy backs rather than real-money investors buying. But that's now starting to change.

The bottom line: There's no perfect answer here. U.S. economic data has been mixed since the Fed's reversal and more investors have come to the conclusion that they did the right thing. But at some point the global economy will have to stand on its own, without artificially low interest rates and trillions in stimulus from central banks. The big question is how far away we are from that point.

Go deeper

Biden signs order overturning Trump's transgender military ban

Photo: Tom Brenner/Getty Images

President Biden signed an executive order on Monday overturning the Trump administration's ban on transgender Americans serving in the military.

Why it matters: The ban, which allowed the military to bar openly transgender recruits and discharge people for not living as their sex assigned at birth, affected up to 15,000 service members, according to tallies from the National Center for Transgender Equality and Transgender American Veterans Association.

GOP Sen. Rob Portman will not run for re-election, citing "partisan gridlock"

Photo: Drew Angerer/Getty Images

Sen. Rob Portman (R-Ohio) announced Monday he will not run for a third term in the U.S. Senate in 2022, citing "partisan gridlock."

Why it matters: It's a surprise retirement from a prominent Senate Republican who easily won re-election in 2016 and was expected to do so again in 2022, creating an open Senate seat in a red-leaning swing state.

Dan Primack, author of Pro Rata
1 hour ago - Economy & Business

Merger Monday has been overrun by SPACs

Illustration: Aïda Amer/Axios

Five companies this morning announced plans to go public via reverse mergers with SPACs, at an aggregate market value of more than $15 billion. And there might be even more by the time you read this.

The bottom line: SPAC merger activity hasn't peaked. If anything, it's just getting started.

You’ve caught up. Now what?

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