(Bloomberg), Bubble warnings sound louder following a week of central bank bombshells from thedovish side. This has stoked some of the most favorable financial conditions for nearly 40 years. 

BlackRock Inc (NYSE:).’s Rick Rieder and Allianz (DE:) SE’s Mohamed El-Erian are among those warning that systemic risks will only multiply, unless monetary officials take more decisive measures to pare extraordinary pandemic stimulus. Although policymakers know the dangers of easy money and are aware of them, their accommodating stances encourage ever greater flows to riskiest markets.

After receiving more cash in March than any other junk bond exchange traded fund, the crypto market has just surpassed $3 trillion. Stock indexes and the largest stock markets are at or near record levels. Cross-asset analysis shows that the U.S. investment climate is one of the most historic in the world. 

The market turmoil and weak central bank oversight are increasing the risk of a new financial crisis. The world’s biggest, the Federal Reserve, signaled last week a delay in interest-rate increases until the labor market is in better shape after it announced a widely expected reduction in asset purchases.

“The risk is you’re creating overheating prices,” Rieder, BlackRock’s CIO of global fixed income, told Bloomberg TV on Friday. “The risk to the system is you get too much liquidity in the system creating excess.” 

The Bank of England stunned markets last week by deciding not to increase rates. Christine Lagarde, President of the European Central Bank, resisted wagers that rates would rise in 2022.

Learn more: Central Bankers Plan Course to End the Easy Money Minefield

Central bankers face two choices: being too quick to derail recovery efforts or too slow to let inflation spiral out of control. Investors have urged for more aggressive end to the pandemic stimulus, but officials are taking a cautious approach. 

“It’s not clear to me why we need to continue to run monetary policy so hot,” El-Erian, a Bloomberg Opinion columnist, said on Bloomberg TV on Friday. “The economy is doing just fine. But the collateral damage it’s creating, the unintended consequences that are resulting, are spreading. This is a Fed that’s going to wait and I fear is going to fall behind and we risk a pretty big policy mistake.”

Catherine Mann was one of Bank of England’s policymakers who voted for rates to remain on hold. She made a careful note during the minutes of the meeting. The ex-Citigroup Inc. economist was seen urging an early end to asset purchases, saying it was fueling an “elevated level of risky asset prices.”

Investors may be doubling down on risk, but at least they’re building a protective cushion. 

According to Bank of America Corp’s latest NYSE: The Bank of America Corp’s latest monthly survey shows that cash allocations have increased to a net 27% over the previous July 2020. Meanwhile, institutional traders are taking advantage of the stock-derivatives trading market. With corporate earnings exceeding expectations, there is good reason for equity and credit gains in America and Europe.

At the same time while policy makers have been slow to turn off the liquidity hose, they’re at least making a start, said Rieder.

“Could they do it a bit faster? Yeah I think so,” he said. “But at least the door is open and we’re moving in the right direction.”

Kristina Hooper is among those downplaying a market rout scenario from any moderation in growth and tighter monetary policy, though she sees a cap in the rally for risky stocks like cyclicals and small caps.“We are in a transition to a more normal economy,” Hooper told Bloomberg Radio. “That, to me, is the theme for 2022. And that suggests that we’re going to see growth moderate, and defensive and large-caps perform better.”

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