For decades, markets grew accustomed to two powerful shock absorbers. If growth buckled, central banks could cut rates and inject liquidity; governments could open the fiscal taps. Deutsche Bank macro strategist Henry Allen argues that both stabilisers now face constraints at the same time: inflation limits central banks’ room to ease, while high yields, heavy debt and already-large deficits make fresh fiscal support harder to deliver. The backstop has not disappeared, but markets can no longer assume it will arrive quickly or without a cost.
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The old monetary and fiscal backstops still exist, but both now come with tighter limits.
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Inflation makes rate cuts harder to deliver just as high yields and debt make fresh stimulus more costly.
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The 1970s and the gold-standard era are warnings about constrained policy, though neither is a direct template for today.
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If policymakers cannot cushion every slowdown, markets may have to absorb more of the business-cycle shock themselves.