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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

Most teachers are white. Most students aren't.

Expand chart
Data: U.S. Department of Education, National Center for Education Statistics; Chart: Baidi Wang/Axios

The nation's 6.6 million teacher workforce has grown more racially and ethnically diverse over the past three decades — but not nearly fast enough to keep pace with a student population that's nearing majority-minority in public schools, two new reports show.

Why it matters: The disparities are especially acute between Hispanic students and teachers, and in schools with 90% or higher non-white student populations.

Updated 11 hours ago - World

UK government: Kremlin has plan "to install pro-Russian leadership" in Ukraine

British Foreign Secretary Elizabeth Truss. Photo: Gints Ivuskans / AFP via Getty Images

The United Kingdom's Foreign Secretary on Saturday night said the government has "information that indicates the Russian Government is looking to install a pro-Russian leader in Kyiv as it considers whether to invade and occupy Ukraine."

Driving the news: U.S. National Security Council spokeswoman Emily Horne called the intelligence "deeply concerning" in a statement to Axios. The Biden administration has said Russia is actively manufacturing a pretext for invasion and warned that Putin could use joint military exercises in Belarus as cover to invade from the north.

Updated 13 hours ago - Science

This powerful new accelerator looks for keys to the center of atoms

Illustration: Eniola Odetunde/Axios

Nuclear physicists trying to piece together how atoms are built are about to get a powerful new tool.

Why it matters: When the Facility for Rare Isotope Beams begins experiments later this spring, physicists from around the world will use the particle accelerator to better understand the inner workings of atoms that make up all the matter that can be seen in the universe.

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