What could reverse the global market decline?

Falling stock and commodity prices around the world are underscoring a change of fortunes for the global economy. As the shockwaves from Europe, China and the developing markets spreads, there is a growing sense among investors that the U. S. might be the next casualty of the global slowdown.
Economists have already begun questioning what, if anything, the Federal Reserve might be able to do to stem the financial market selling pressure. Weakness has been broad-based and is visible in stocks, commodities as well as high-yield corporate bonds. Since the first bear market of the new millennium, the Fed has played an outsized role as a stimulator of equity markets and the economy.
Congress has long since surrendered its sovereignty to the Fed in the way of introducing stimulus measures (e.g. lower taxes and lifting regulatory burdens), and has simply looked to the central bank in times of trouble. That dynamic will likely change in the years ahead as it becomes increasingly apparent that the Fed’s stimulus game since 2002 has likely played itself out.
With interest rates near zero and quantitative easing (QE) on the shelf, economists wonder what the Fed could possibly due to reverse a major bear market if it develops. The latest crisis which threatens the U. S. financial system originated from abroad with problems China and the emerging markets. Economists are debating what impact a global economic slowdown might have on the mighty U. S. economy and whether or not the U. S. could shrug off global weakness.
The most reliable leading indicators of domestic economic strength, including the Conference Board’s Leading Economic Index (LEI), show no sign of weakness in the U. S. economy yet. In view of how much momentum as the economy currently has, it will likely take several months before current financial market and global economic problems show up in U. S. economic statistics. It wouldn’t be surprising to see consumer spending levels remain elevated in the coming months even if the global economy continues deteriorating.

This post was published at GoldSeek on 30 September 2015.