This concept refers to the end of the economic boom that encourages investors to take so much risk that their loans exceed what they can repay.
The collapse of banks, the turbulence of the markets and the current economic uncertainty increase the possibility of the ‘Minsky moment’, said on Monday the main analyst of JPMorgan, Marko Kolanovic, quoted by Bloomberg.
The concept of ‘Minsky moment’, named after the American economist Hyman Minsky, refers to the end of the economic boom that encourages investors to take on so much risk that their loans exceed what they are able to repay. In this case, any destabilizing event can cause investors to sell their assets to pay their debts, causing a market crisis.
“Even if central bankers are successful in containing the contagion, credit conditions will tighten faster due to pressure from both markets and regulators,” Kolanovic said.
JPMorgan expects the Federal Reserve to choose to raise the main interest rate by 25 basis points after its meeting on Wednesday. Kolanovic advised investors to stay cautious with risky assets and be defensive in their portfolio allocations. In addition, he argued that this forecast is based on the view that bond yields will fall as a result of monetary policy tightening and the erosion of positive tradeoffs, such as savings from covid-19 or the ability to set prices of the corporations.