Investing with the conundrum of low interest rates and low inflation rate

ALMOST half a year has passed since the World Health Organisation (WHO) declared the coronavirus outbreak a pandemic. Since then, we have witnessed global economies slipping into recession, as activities came to a standstill amid the social distancing measures and border lockdowns around the world.

More notably, the pandemic has added a "disinflationary" shock to a global economy already weakened from the US-China trade skirmish of last year. As small businesses struggle through the Covid-19 induced recession, employees were furloughed and laid off, and unemployment in the United States shot up to near 15 per cent level for the first time in more than 50 years.

In response, the Federal Reserve has flooded the economy and the markets with a massive amount of liquidity. Beginning in March, the Fed reduced its short-term rate to near zero, bought more than US$2 trillion in Treasury and mortgage bonds and unveiled nine lending programmes to try to keep credit flowing smoothly.