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How to cure the Fed's tapering cold feet? Buy some socks, experts say
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by Sarah Miloudi on Sep 19, 2013 at 14:10
'A big surprise', 'disappointing' and downright 'wrong-footing' are just some of the phrases being banded around following the Fed's decision to delay tapering.
Uneasy with the strength of the recovery, Ben Bernanke has taken fright at some of the weaker data to emerge on the US: retail sales are down - which account for 70% of GDP, homes are no longer changing hands at such a fevered pace and jobless numbers remain above target.
But while the more dovish commentators had been expecting exactly this scenario, others are upset about the central bank's move.
'This is nothing to cheer about; it will make the eventual day of reckoning even worse for the bond and equity markets,' scolded Old Mutual Global Investors' Stewart Cowley, who argued that for too long investors have been hooked on quantitative easing (QE).
'I suspect the euphoria won't last long,' he continued, pointing to the jump in markets seen on the back of the Fed's decision. 'We are now engaged in the biggest game of "Chicken" the world has ever seen - investing in US government bonds has become the equivalent of running into the middle of the motorway to pick up pennies.'
Wayne Lin, Legg Mason Global Asset Allocation portfolio manager, said that Bernanke (pictured) had certainly caught most investors on the hop.
This comes with some downside, and given investors had been expecting a reduction in asset purchases from roughly $85 billion to $75 billion a month, emerging market equities, which were already under pressure, have been taking the strain.
Today, markets have reacted positively to Bernanke's call on QE, Lin said, though he also pointed out the Fed could in the end postpone its decision on tapering until after the upcoming Budget battle in the US Congress.
Echoing this, Rathbones' Julian Chillingworth also had the debt negotiations in his sights and said this was bound to be a concern for the Fed because it could cause more volatility.
Chillingworth also pointed to the parallels between America and Britain, and argued Bernanke's tapering cold feet had not just thrown investors, but mirrored the Bank of England's Mark Carney, who last week said the UK's recovery was still in its infancy.