Last year saw many financial markets rise smoothly, with volatility at a minimum.
The S&P 500 index, for example, experienced no decline of more than three consecutive days, and the CBOE Volatility Index (VIX) hit a seven-year low in June.
But the 55 percent drop in oil prices in the last six months and the dollar's rise to multi-year highs against a range of currencies have upset the apple cart, says Mohamed El-Erian, chief economic adviser at Allianz.
"Put these two things together, and they threaten the low-volatility paradigm that markets have enjoyed and that central banks have delivered," he tells
CNBC.
Indeed, the S&P 500 already has slid 3.5 percent from its Dec. 29 record high, and the VIX, which measures expected volatility in the S&P 500, has soared 40 percent since then.
The global economy is in the balance, El-Erian maintains.
"Either we tip to genuine growth and central banks are able to cope with this change in the global paradigm, or we tip to something worse. I think the probabilities are pretty equal right now," he asserts.
"What I feel strongly about is we're not going to be able to maintain for one or two more years this low-volatility paradigm where central banks repress major prices."
He still believes the U.S. is in good shape. "Valuations have moved a lot," El-Erian notes, "So on a stand alone basis, the U.S. absolutely dominates, but markets have priced that in already."
Meanwhile, James Grant, editor of Grant's Interest Rate Observer, says the huge stimulus programs engineered by central banks since 2008 have done little to boost the global economy and will continue to do harm.
"In the past seven years central banks have conjured more than $10 trillion of digital wampum. Still, prosperity eludes them," he writes in the
Financial Times. The Federal Reserve's balance sheet has ballooned to $4.5 trillion.
"The juxtaposition between clouds of electronic scrip on the one hand, and ultra-low bond yields on the other, is the financial non sequitur of 2015," Grant says. "If it does not concern the stewards of capital today, it may torment them tomorrow."
© 2026 Newsmax Finance. All rights reserved.