A long phase of heightened risk tolerance in our economies has come to an end. To the extent that the more recent turns in the markets correct past excesses, this is a welcome – if painful – process that we had anticipated and asked market participants to prepare for in past interventions.
At the same time, the decline in the compensation for risk that the recent turmoil has partly reversed is not a recent development. It started a quarter of a century ago, in tandem with – and probably reflecting – what seems to have been a persistent decline in macroeconomic uncertainty.