NEW YORK – Five years after Federal Reserve Chairman Ben Bernanke dropped U.S. interest rates toward zero to end the worst economic crisis since the Great Depression, America's financial markets have become the envy of the world.
From money-market rates to yields on government and company bonds to equity prices, financial conditions in the United States are healthier than before Lehman Brothers Holdings collapsed in 2008, even as growth falters in Asia and Europe. The U.S. now has the strongest economy among industrialized nations, which would be its highest rank since 2000, according to David Woo, the New York-based global head of interest rate and currency strategy at Bank of America Corp.
"Resilient is the word that comes to mind in regards to the U.S.," Paul Montaquila, the fixed-income investment officer at BNP Paribas's Bank of the West, which oversees $62 billion in assets, said in a telephone interview from San Ramon, Calif. The strength of the financial markets demonstrates "the U.S. is still the preferred market of choice for global investors and the most-important engine of growth."
While the Fed's decision to push borrowing costs to historical lows in December 2008 helped developing economies recover more quickly as the U.S. housing bust crippled Americans' ability to spend, investors are now showing greater conviction that the nation will underpin growth globally.
The optimism comes even after the impasse between lawmakers last month pushed the U.S. to the brink of its first default and left Americans' approval of their congressional leaders at a 39-year low.
Buoyed by the Fed's purchases of assets in the debt markets, the U.S. has financed spending with record demand for Treasuries in the past four years and companies are on pace to obtain more bonds and loans than ever this year. That's bolstered the world's largest economy and pared its deficit to the smallest in five years.
Under Bernanke, the Fed cut its target overnight lending rate by 5 percentage points in a span of 16 months to between 0.25 percent and zero as the credit crisis debilitated the nation's banks, businesses and consumers and tipped the U.S. into its deepest recession in seven decades.
The central bank also implemented its quantitative easing (QE) program, designed to restore demand by suppressing longer-term borrowing costs with purchases of Treasuries and mortgage-backed securities. Since QE started in 2008, the Fed has bought more than $3.5 trillion of debt to help kick-start the economy and has currently pledged to purchase $85 billion of bonds each month.
The Fed's largesse helped repair confidence in the U.S. financial system and restored the conditions that enabled the economy to begin recovering, according to Jennifer Vail, head of fixed-income research of Minneapolis-based U.S. Bank Wealth Management, which oversees $110 billion.
"Five years ago we were on the brink of collapse, the markets were frozen and you couldn't trade a thing," she said Nov. 13. "And QE changed that. It was a success and keeping everything from falling apart."
Based on Bank of America's model, which analyzes jobs, the balance of goods and services and net borrowing, the U.S. is now rated higher than nine other economies from the euro-area to Japan and Canada, beating out Switzerland for the top spot. At the start of the financial crisis in 2008, the U.S. would have been the lowest-ranked economy.
In the past year, both joblessness and the deficit in the U.S. fell the fastest of any economy, while its current account improved more than at any time in the past five years, according to Woo's report on Nov. 14 introducing the model.