The central bank has created a monster. It really requires too much text to go into all the details, but some points to consider: 1) We've had two drawdowns o

The central bank has created a monster. It really requires too much text to go into all the details, but some points to consider: 1) We've had two drawdowns of more than 50% in equities in the last 20 years. Great stock performance over the past decade may have blunted memories of this for most. 2) After both drawdowns, the fed immediately dropped rates and performed some level of QE to stimulate the economy. If we experience another crisis event, it seems they've largely run out of ammo. Interest rates are already close to 0 and Fed is actively buying (e.g. printing money) 120B in bonds/month. 3) Despite the monetary stimulus, it took many years to break even in the indexes. If you bought at the peak of dotcom, it would've taken you something close to 10 years just to breakeven. 4) S&P valuations are near dotcom bubble peak by some metrics, such as the Shiller P/E ratio. This is often justified by low interest rates, which has truth to it, but is also importantly predicated on rates remaining low. 5) 20% of companies in the S&P are now considered "zombies". Effectively meaning that due to extremely low interest rates many companies have taken on large amounts of debt. If bond yields rise, they may no longer be able to service this debt. 6) The US govt is in a similar position. They sell treasuries to fund policy measures. Often the buyer of these have been free market participants, such as US citizens and foreign countries. However the Fed has been increasingly monetizing this debt. By monetizing, I mean they effectively print money to buy treasuries to fund US govt programs, which increases the money supply. The govt would also be in a sticky situation if rates rose significantly. Foreign countries have been increasingly net sellers of treasuries. 7) Real home prices are at an all time high in recorded history, surpassing the housing bubble peak. According to Shiller. 8) IF inflation presents itself in a big way in the next few months, the Fed may be forced to pull the rug on the whole thing by ratcheting up rates faster than people expect. Potential catalyst for a drawdown/sell off type of event. Now there's two primary camps. One thinks that the fed will ignore inflation and leave rates low to avoid rising yields that could cause problems with private/public funding. They seem to signal this strategy somewhat with their recent policy shifts. Another camp believes that if the data is bad enough, the Fed will be forced to act. If inflation expectations become unanchored, it tends to become self fulfilling. People rush to spend money to stay ahead of inflation, thus pushing up prices. This can be pushed by the private markets rejecting the rates on bonds, forcing the Feds hand to either print money to buy even more bonds, or to raise rates to make US treasuries competitive. Of course there's a third camp that believes inflation will be transitory and not materialize in a significant way in the data. In this case rates can stay low and we follow Powell's gentle liftoff approach. I don't say these things to spread fear, but people should be aware of the state of the economy. I think the Fed has done a great job at keeping the engine running in the short term, but I fear we're now backed into a corner should another economic crisis arise.