Thursday, April 10, 2014

The Federal Reserve Under Fire

by sprout money

It is still unclear what kind of role the Fed played in the recent correction on Wall Street. Should we blame the Federal Reserve as the main culprit of the dive we experienced as tapering is taking its effect? Clifford Noreen, president at Babson Capital, fears that many investors did not realize the effect of tapering from the start. Most of them assumed that the Federal Reserve was bobbing along, but nothing is further from the truth of course.

The Federal Reserve Is Draining The Markets

At a rate of 10 billion dollars a month, the Federal Reserve is draining the markets, so investors should not have been so surprised about a correction. Because they are, however, Noreen believes it would be a smart move for the central bank to take a breather from tapering as it would give investors the opportunity to catch up mentally.

Peter Boockvar, chief market strategist at Lindsey Group, agrees with his colleague as everything revolves around the Federal Reserve in his opinion. Many investors have underestimated the impact of tapering, and are now being confronted with reality: the rally of the last couple of years was indeed fueled by Bernanke’s printing press.

Globe over many american dollar bank notes

Ultimately it is not a coincidence that the markets are correcting at a time when the Fed is halfway in its tapering program. The central bank gave the high flyers of the stock market wings in recent years, but are knocking it out of them as we speak. A lot of investors are reaching for stable large cap stocks and gold once again as a consequence.

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