The Most Accurate Economist On Wall Street Has 3 Simple Reasons Why He's Not Worried About The Taper
Many analysts attribute recent market volatility to talks of the taper.
UBS's Maury Harris and his U.S. economics team continues to get slammed with questions about the taper. So he addressed it in one eloquent paragraph, which follows::
One of the most frequently expressed worries is whether the likely upcoming diminution and then termination of Fed securities purchases through its QE program will harm the economy. We are not so concerned. First, the Fed has clearly communicated that it is not going to be withdrawing its QE support of the economy unless a better-looking economy does not require such further support. Second, a QE type of monetary policy should work with long lags. Even when the Fed ceases to incrementally augment its balance sheet, US banks will remain flush with liquidity and excess reserves that already have been added to the banking system. Finally, rising mortgage rates as imminent QE tapering has become more likely should not much trim home mortgage demand. Typically, when rates rise there is a negative effect on housing demand as the more marginal, middle-income borrowers are disqualified. However, reflecting the absence of an active subprime mortgage lending market in recent years, such borrowers already have been excluded from the pool of potential homebuyers. Instead, recently rising mortgage rates and home prices should be motivating earlier postponed home demand as such potential buyers now desire to buy before rates and prices rise even further.
The Federal Reserve's Federal Open Market Committee meets next Tuesday and Wednesday. No one expects any tapering announcement then.