Wealth Manager - the site for professional investment managers

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

Real test of Fed tapering still to come, economists warn

Real test of Fed tapering still to come, economists warn

Economists have said there are risks on the horizon, following news the US Federal Reserve will gradually start to withdraw its financial stimulus.

Yesterday, bank chairman Ben Bernanke revealed that it would reduce its £85 billion monthly asset purchases by $10 billion, a move welcomed by global markets.

Peter Dixon, global equities economist at Commerzbank AG noted that although it was announced this month, the tapering would not actually start until January, which was when we will see the real impact.

'We will see next year when people are back at their desks and fully focused,' he told Wealth Manager. 'When people focus more clearly on what's going on, that's when the Fed will be more nervous.'

But he suggested that, based on today's reaction, the markets seemed to understand that the Fed is going to  'give with one hand but take a little away with the other,' as the economy had strengthened so considerably. 

'The US economy is escaping from its debt trap and Fed tapering is just another sign of recovery,' Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment agreed.

But while this pick up in growth was good for stocks, he said that 'the prospect of eventual interest rate rises makes us cautious on government bonds and interest rate sensitive sectors of the stock market like consumer staples, utilities and property.'

Although the US central bank has stressed it is not anticipating a rate rise until at least 2015, Keith Wade, chief economist at Schroders, noted that while inflation is low, it is a lagging indicator, and looks set to rise.

'There are already signs that wages are responding to the fall in unemployment and as the labour market tightens further, which leading indicators suggest it will, price pressures will pick up,' he said.

 

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Boutique tapes: my business will never be sold

Boutique tapes: my business will never be sold

In the final part of our four part series we discuss consolidation and whether it's getting tougher for boutiques to survive.

Play Boutique tapes: are top managers better off at small firms?

Boutique tapes: are top managers better off at small firms?

In episode three of our series, boutique bosses discuss whether the best fund managers are more likely to thrive at smaller firms.

Play Boutique tapes: if you want a Ferrari, you have to pay for it

Boutique tapes: if you want a Ferrari, you have to pay for it

In the second part of our four-part series, boutique bosses are asked how they can justify the fees charged by active managers.

Read More
Your Business: Cover Star Club

Profile: how this boutique beat the big guns of wealth

Profile: how this boutique beat the big guns of wealth

This small west country offshoot of a local IFA scooped a 2018 Citywire award from beneath the noses of the national challengers

Wealth Manager on Twitter