That would likely
encourage risk assets to get back on track.
Not exact matches
After all, when a central bank influences the cost of financing through changes in the policy interest rate, its actions affect the economy by changing
asset prices,
encouraging or discouraging
risk taking, and influencing credit flows.
And did that do anything in the first place, other than to boost
risk assets and «
encourage» policymakers in Congress to spend at Fed - influenced low interest rates?
That should cause
risk assets to re-price lower and
encourage capital flows to fixed income.
A long period of low rates has
encouraged investors to assume greater
risk in the stretch for yield, inflating
asset prices.
Lastly, as noted in BCA's 2014 outlook report: In a liquidity trap, where interest rates reach the zero boundary, the linkage between monetary policy and the real economy is
asset markets: zero short rates act to subsidize corporate profits, drive up
asset prices and
encourage risk - taking.
The declining interest rate makes government bonds and savings accounts less attractive,
encouraging investors and savers toward
risk assets.
Since the onset of the financial crisis, the Fed's unconventional monetary policy has inadvertently suppressed volatility,
encouraging market participants to hold more
risk assets across equity and fixed income.
The basic idea was to
encourage older investors who have made gains in the
risk assets, typically stocks, though it would apply to high yield bonds and other non-guaranteed investments that are highly correlated with stocks.
That should cause
risk assets to re-price lower and
encourage capital flows to fixed income.
Stop to think about it and you'll realise just how clever the system is,
encouraging the player to take their time and recon every area and approach with caution rather than just going in with all guns blazing, or else
risk losing a potentially valuable
asset that could help you unlock the next batch of equipment.
Indeed, the AR5 report will help to accelerate the trend of insurance companies looking to
encourage risk reduction to climate change through the hardening of key infrastructure and other vulnerable capital
assets.
Key to
encouraging improvement will be investors, many of which are showing increasing appetite for pressuring their
assets to meaningfully address climate
risks, and policymakers who are similarly upping the legislative pressure on businesses.