In JM Barrie’s play Peter Pan, the audience is asked to clap if they believe in fairies. If they fail to clap, the character Tinkerbell the fairy will die. A Tinkerbell phenomenon is one that exists only because people believe in it.
Central banks in the developed world are experiencing such a moment. For 30 years, they have been the dominant actors in economic policy, controlling the cycle through adjustments in interest rates and via quantitative easing. The primacy of central banks has coincided with an era of low inflation; apparent evidence of their policy-setting skills.
And investors have also had faith in central banks’ ability to rescue the economy at times of stress. Equity markets tend to rally when central banks indicate they are about to ease monetary policy. Under Alan Greenspan, the long-serving chair of the US Federal Reserve, this phenomenon was known as the “Greenspan put”.