Markets can ride out tapering, say experts

Wall Street appears to be a little more confident that global markets can weather a gradual tightening in Federal Reserve monetary policy. Stocks have climbed and the Treasury yield curve has flattened since US Federal Reserve Chair Jerome Powell announced the Fed could begin scaling back asset purchases in November. But there’s no tantrum in sight, at least so far, of the sort that roiled investors in 2013.

The Fed is trying to avoid creating fear in markets about the pullback in asset purchases, Jeffrey Rosenberg, senior portfolio manager for systematic fixed income at Blackrock, said on Bloomberg Television: “The Fed has got to be pleased that their communication on the longer way to tapering has avoided the dreaded fear of the tantrum. The flatter curve is kind of an initial response. Yes, the curve is flatter, but you’ve got to squint to see that market reaction. This is a very good outcome for the Fed in terms of signaling their intent to give the market information well ahead of the tapering decision.”

Vincent Reinhart, chief economist and macro strategist at Mellon, says the markets have got it about right: “They are going to unwind unconventional policy action, there is a sell-by date for the asset purchases, probably July of next year, and that they are ready to start raising rates maybe as soon as December next year. However, what they also heard is that they are confident enough about the economy to support that.”

The Fed is charting a steady course, Joyce Chang, Jpmorgan Global Research

Chair says in a television interview with Bloomberg: “The Fed is effectively on a cruise control at this point. Powell has made it very clear that it will take a serious disappointment to knock them off course.”

The dot plot indicates a greater tolerance to inflation, says Matthew Luzzetti, chief US economist at Deutsche Bank AG in New York.