In the past, rising interest rates stemmed the rise in asset prices in OECD countries. But monetary policy now remains expansionary throughout the entire expansion period. What will stem the rise in asset prices if no longer monetary policy? An “exogenous” crisis and/or a fall in demand for an asset once its price becomes too high, according to analysts at Natixis.
What mechanisms may then stem the rise in asset prices today?
“An exogenous crisis, not linked to an economic or financial mechanism (geopolitical crisis, public health crisis); A fall in demand for assets once their prices become too high: if share prices are abnormally high, savers will turn away from equities and share prices will fall; if real estate prices are abnormally high, households will stop buying housing.”
Are there signs today of a fall in demand for high-priced assets?
“Are there now signs of this dynamics where even though interest rates remain low, asset prices stop rising due to a fall in demand for assets? This is clearly not the case at present: asset prices continue to rise and demand for equities is strong, bearing in mind that in the US this takes the form of share buybacks by companies.”