Forget recession, world economy is being run 'hot'

The world’s richest countries seem prepared to run their economies hot, leaving money and budget policies loose despite elevated inflation and mountainous debt piles.

- Mike Dolan

Stocks and gold get the picture and it’s a jarring prospect for bonds. Aided by seemingly new waves of excitement around artificial intelligence, and despite ever-present bubble worries, the new policy constellation is supercharging record-high world stock prices in a staggering turnaround in sentiment over the summer.

Just six months ago, as Washington ratcheted up tariff plans and financial markets had a near heart attack on the implications, many assumed the risk of a US and global recession would rise dramatically as the year progressed.

But that has turned almost 180 degrees. The latest twist came this weekend in Japan — the only G7 economy even considering tighter monetary policy. The surprise election of Sanae Takaichi as head of the ruling Liberal Democratic Party, and now likely Japan’s first woman prime minister, is expected to lean against further Bank of Japan rate rises and in favour of further fiscal stimulus.

If BOJ tightening was put on ice now with its rates still only 0.5%, then wider G7 monetary settings are very loose indeed. European Central Bank rates are already back near three-year lows of 2% and the Federal Reserve has resumed its easing campaign after a nine-month hiatus and expected to lop another 50 basis points off its policy rate to near 3.5% by year-end.