Monday, June 3, 2013

Why Is There so Much Hysteria Over Fed Tapering?

From the Financial Lexicon: “….Let’s remember that nobody in a position of power at the Fed is hinting that an interest-rate hike is coming any time soon. There is no danger of the Fed imminently winding down its balance sheet by selling assets. The Fed isn’t even about to stop QE altogether. In fact, the Fed hasn’t even announced that it is tapering its purchases. Instead, there is simply talk in the markets about tapering. Tapering refers to a reduction in the amount of purchases the Fed will make on a monthly basis. The reaction among investors to the prospect of simply scaling back the quantity of monthly asset purchases by the Fed reminds me of the reaction we often see when Congress discusses reducing the future rate of spending increases. When there is as much hysteria as we have seen over simply reducing the pace of future asset purchases, something is seriously wrong. From a financial markets perspective, I think it shows an incredible underlying weakness and lends more credence to the fact that the Fed is propping up financial assets across the board…..

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