The writer is a financial journalist and author of More: The Rise of the Global Economy Over 10,000 Years.

For years, asset markets have been acting somewhat like a crew Star Trek: on a mission to “boldly go where no one has gone before”, reaching new heights and finding new vehicles to speculate.

But 2022 served as a reminder that, like the cast of sci-fi series, missions can have casualties. In this case, the “Red Shirts” — the hapless extras sent to meet danger with Captain Kirk and Mr. Spock, only to be slaughtered by that episode’s monster — were the cryptocurrencies, which suffered a crash that culminated in the collapse of FTX.

But more traditional origins had their problems, too; The S&P 500 is down 16 percent at the time of writing and the MSCI Emerging Markets Index is down 23 percent.

The reasons for these setbacks are known and interrelated. The first was the Russian invasion of Ukraine, which disrupted energy markets and added a “supply shock” to existing inflationary pressures. This exacerbated a second factor: the struggles of central banks to set the right monetary policy in the face of a combination of rising prices and hurting consumer demand. Financial markets have spent the year debating whether central banks will do too little to rein in inflation or do so much to crash the economy.

Not far from the surface of this debate was a more pressing long-term question. Given the level of debt accumulated across the advanced economy, is there a limit to the extent of monetary tightening? Since the financial crisis of 2007-2009, attempts to return interest rates to what were considered “normal” levels in the late 20th century have fizzled out due to market volatility. As Scotty used to say regularly about an engine Star TrekUSS Enterprise, “She’s able to take it, Captain.”

As a result, concerns about the fragility of the financial system are the best source of hope for the bulls. This is why the markets have been desperate for any sign of a “pivot” on the part of the Fed. This pivot does not require a Federal Reserve decision to cut interest rates; Just a sign of a slowdown in the pace of price increases. At the moment of maximum danger, the markets will be spared just as Messrs. Kirk, Spock and McCoy will be “transported” to their ship in the face of a Klingon attack.

So there was a lot of optimism this week when the Fed detained Latest price-fixing meeting. After all, inflation fell in November to 7.1 percent, its lowest rate this year. And the Fed slowed the pace of interest rate increases, unveiling a jump of half a point instead of its previous three-quarter point shifts. But Jay Powell, chairman of the Federal Reserve, wasn’t ready to bail out the markets yet. The central bank needed to see “significantly more evidence” that inflation was abating before it would ease the monetary brakes. The Fed’s expectations were for higher rates, higher inflation and slower growth than it had previously forecast.

Perhaps investors’ desperate need for Fed reassurance should be cause for thought. In the normal cycle, interest rates should rise as the economy booms, but stock markets can still thrive because earnings expectations are revised upwards.

Since the financial crisis of 2007-2009, there has been a less healthy mix. Economic growth has been disappointing in the developed world, but that has not hindered risk assets; Stocks, high-yield debt, and property boomed. Is this really healthy? Ultra-low short-term interest rates may have made it much easier for the corporate sector to finance itself, but they may have resulted in too many “corporate zombies” surviving and thus preventing the “creative destruction” needed to transform the economy and increase output.

A world in which economies stagnate while financial markets thrive would strike Spock as highly inconsequential. But it is entirely possible that 2023 will see a resumption of this pattern. All you want for Christmas markets is the hope of lower prices; A stronger economy is not really needed.

For things to change, one of three things must happen. The first is for inflation to become entrenched in advanced economies, as it did in the 1970s. This is not likely to happen. A combination of population aging and suppressed immigration may lead to a wage and price spiral. This, in turn, will eat into corporate earnings and thus stock market valuations. The second possibility is that a combination of rising energy costs and monetary tightening is depressing markets as well as the economy. Again, this can happen; It happened in the early eighties.

The third possibility would be much more correct. Somehow, advanced economies may find improvements in productivity that can bring about faster economic growth and a higher standard of living for all; This combination should be good for asset markets as well. Sadly, absent some great technological breakthroughs, this seems like the least likely outcome of the three. In an ideal world, markets and the global economy could, in Spock’s words, “live long and thrive.” But often in the real world, it is only financial markets that thrive.