A Bank of America global fund manager survey released on February 17th indicated a surprising level of investor acceptance of continued economic and geopolitical instability, despite identifying inflation, rising bond yields, and international conflicts as significant risks.
The survey revealed a marked shift in expectations for a global economic “landing.” While fears of a sharp economic downturn – a “hard landing” – have diminished since the implementation of former President Donald Trump’s trade policies, the anticipation of a “soft landing” has also decreased. A majority, 52 percent of respondents, now predict “no landing” within the next 12 months, suggesting a sustained period of ambiguous economic performance.
This apparent investor complacency stands in contrast to decades of established economic thinking. Since the 1980s, a period often referred to as “the Great Moderation,” many economists believed that factors like globalization and the end of the Cold War had created a relatively predictable global environment. This era fostered an expectation of steady growth and manageable risk. However, analysts now suggest that this predictability began to erode following the 2008 global financial crisis, and has been fundamentally dismantled under Trump’s presidency.
Trump’s approach to governance has been characterized by a deliberate disruption of established norms and institutions. His administration repeatedly challenged the foundations of the international trading system, questioned the independence of the Federal Reserve, and frequently undermined trust in established sources of information. These actions, while initially met with resistance and concern, appear to have gradually normalized a state of perpetual crisis, according to observers.
The normalization of chaos is not simply a matter of investor fatigue. Trump’s tactics of deflection, coercion, and direct attacks on the veracity of information have created a climate where conventional assessments of risk are frequently invalidated. This has led to a situation where investors are less shocked by events that would have previously triggered significant market reactions.
The Federal Reserve has been a frequent target of Trump’s criticism. Throughout his presidency, he publicly pressured the central bank to lower interest rates, despite concerns about inflation and economic stability. These interventions raised questions about the Fed’s independence and its ability to effectively manage monetary policy. Jerome Powell, the current chair of the Federal Reserve, has maintained a policy of cautious tightening, despite repeated public rebukes from Trump.
The impact of Trump’s trade policies, particularly the imposition of tariffs on goods from China and other countries, initially sparked widespread fears of a global trade war and a subsequent economic slowdown. While some trade disputes remain unresolved, the anticipated economic fallout has not fully materialized, contributing to the current sense of diminished risk aversion. The US Trade Representative, Katherine Tai, continues to engage in ongoing negotiations with China, but significant barriers to a comprehensive trade agreement remain.
Geopolitical tensions, including the ongoing conflict in Ukraine and escalating tensions in the Middle East, represent ongoing sources of uncertainty. The Biden administration has continued to provide military and economic aid to Ukraine, while simultaneously attempting to de-escalate tensions with Russia through diplomatic channels. However, a resolution to the conflict remains elusive, and the potential for further escalation remains a significant concern.
The Bank of America survey also highlighted concerns about inflation, which remains stubbornly high in many countries. Central banks around the world are grappling with the challenge of controlling inflation without triggering a recession. The European Central Bank, for example, has been raising interest rates aggressively in an attempt to curb price increases, but faces growing pressure from member states concerned about the impact on economic growth.
The survey’s findings suggest that investors are increasingly willing to tolerate a higher degree of uncertainty, potentially driven by a belief that traditional risk management strategies are no longer effective in a world characterized by unpredictable political and economic shocks. The next Federal Open Market Committee meeting is scheduled for March 20-22, and will be closely watched for signals about the future direction of monetary policy.