Federal Reserve chair Jerome Powell, like his peers at other major central banks around the globe, has gotten his wish: Investors have gone from fearing a once-in-a-generation recession to feasting on risk. But now policy makers have another problem—the potential that investors will get so carried away that they rip a new hole in the economy.
Reason for concern can be found just about everywhere. Armchair investors have flocked to trading apps, snapping up everything from Tesla stock to bitcoin. A survey by pension consulting firm Mercer found that European institutions have made big shifts over the years to assets that are seldom traded and harder to value—things like real assets, which include real estate and natural resources, and private-equity investments in non-public companies. And though tech stocks drove the equity markets through multiple record highs in 2020, Wall Street analysts say it’s not the time to pull back on them.
Welcome to the high-risk economy. With interest rates on government bonds hovering around record lows—and not expected to go anywhere anytime soon—investors of all kinds are scrambling for riskier assets that offer growth. It all adds up to a world in which investors are, seemingly permanently, taking ever more risk.