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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

Updated 3 hours ago - Politics & Policy

What we know about the victims of the Indianapolis mass shooting

Leaders of the Sikh Satsang of Indianapolis participate in an interview addressing their grief. Photo: Jon Cherry/Getty Images

Law enforcement in Indianapolis have identified the eight people killed in Thursday's shooting at a FedEx facility.

The big picture: The Sikh Coalition said at least four of the eight victims were members of the Indianapolis Sikh community.

3 hours ago - Health

The health care system collects the effects of racism

Illustration: Sarah Grillo/Axios

A person without stable housing doesn't have a place to keep insulin cold. A person without a car may not be able to get to the doctor until it's an emergency. A low-wage worker is less likely to have health insurance, and therefore more likely to skimp on care they might need.

The big picture: The American health care system delivers far better results for white patients than it does for people of color, and those health disparities are in large part a reflection of broader social and economic inequality.

Capitol Hill's far right pushes Anglo-Saxon values, European architecture

Photo: Al Drago/Bloomberg via Getty Images

Multiple far-right House Republicans have begun planning and promoting an America First Caucus aimed at pushing "uniquely Anglo-Saxon political traditions," Punchbowl News first reported.

The big picture: "The document was being circulated as the GOP is struggling to determine a clear direction as it prepares to try winning back control of the House and Senate in the 2022 elections," AP writes.

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