{"id":9688,"date":"2021-07-01T06:19:42","date_gmt":"2021-07-01T06:19:42","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9688"},"modified":"2022-02-26T13:05:52","modified_gmt":"2022-02-26T13:05:52","slug":"when-will-fed-start-tapering-and-what-effect-will-it-have","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/when-will-fed-start-tapering-and-what-effect-will-it-have\/","title":{"rendered":"When Will Fed Start ‘Tapering’ and What Effect Will It Have?"},"content":{"rendered":"\n

Patty T. from Baton Rouge, LA asks: <\/em>Hello Mitch,\nthere seems to be a lot of news about when the Federal Reserve will start\npulling back some of their support for the economy. Do you see this timing as a\nbig deal, and something to watch? How might it affect the markets?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for your question, Patty. Financial news these days\nseems to focus overwhelmingly on inflation worries and the Federal Reserve\u2019s\npotential response. Before giving you my thoughts on this issue and your\nquestion, I think there is something very key to note: the more the media\nfixates on a story\/fear and the more widely discussed it becomes, the less\npricing power it ultimately has on markets, in my view.  <\/em><\/p>\n\n\n\n

On the issue of inflation and Fed tightening (tapering), I see\nthe story as so widely known and discussed that I think they lack real pricing\npower at this stage. The concern already outweighs the risk. <\/p>\n\n\n\n

There is also not a lot of historical evidence supporting\nthe conclusion that Fed tapering will lead to an economic downturn or bear\nmarket. For readers who don\u2019t know, Fed tapering refers to lowering and\neventually ending the $120 billion per month in bond buying. For one, Fed bond\nbuying is a relatively new tool for monetary support. The aftermath of the 2008\nGlobal Financial Crisis was the first time it was deployed.1<\/sup><\/p>\n\n\n\n

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So, we\u2019re really only talking about one data point linking\nFed tapering to economic and market performance. As it were, that data point is\npositive: when the Fed first announced a \u201ctaper\u201d in May 2013 to the end of the\ntaper in October 2014, the S&P 500 went up by over +20%. The Fed starting\nraising rates in 2015, and the market still kept going up. Volatility? Sure.\nBut bear market and recession? Didn\u2019t happen. <\/p>\n\n\n\n

I am not too worried about Fed tapering or language implying\nFed tightening. The market has plenty of time to adjust, and history shows the\neffects are not as deleterious as many suggest. I even see a silver lining in\nFed tapering, whenever that day arrives. In my view, if the Fed pulls back and\neventually ends the practice of buying bonds, it will put some upward pressure\non the longer-term interest rates, i.e., the long end of the yield curve. A\nsteeper yield curve is good for the economy and stocks, in my view. Don\u2019t fear\na Fed taper, embrace it. <\/p>\n\n\n\n

In the meantime, I expect the financial media coverage to\nstay focused on the Fed and inflation issue, and there will likely be no end to\nspeculation over when the Fed will start tightening. My advice: tune it out.\nStocks and the economy can do just fine without $120 billion per month in bond\npurchases.<\/p>\n\n\n\n

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There has been a lot of worried talk about tapering, but Mitch does not see it leading to a bear market <\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9688","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9688","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9688"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9688\/revisions"}],"predecessor-version":[{"id":10364,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9688\/revisions\/10364"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9688"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9688"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9688"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}