The last time the markets worried about the Fed in a major way was in the 2013 ‘taper tantrum’, when Fed chair Ben Bernanke announced the bank would stop adding to its QE balance sheet, sending bond yields spiralling.
Rather than selling off bonds held under the QE programme, the Fed is currently merely discussing reducing the rate at which it repurchases bonds to keep the programme at the same size.
But if the data remains poor and the Fed carries on regardless, could that be enough to spark a market-battering panic that the golden days are over?
Most economists in the UK issued sounded relatively relaxed.
Hermes Investment Management chief economist Neil Williams said the slowing of repurchases under QE was the “logical next tightening step” for the Fed if it is indeed unable to roll out further rate rises this year.
“What it will do is allow them, in tandem with interest rate rises, to provide additional tightening ‘by doing nothing,” he said.
Close Brothers Asset Management’s chief investment officer Nancy Curtin said signs of poorer data in the US – in inflation and wage growth in particular – were not yet serious enough to knock the Fed of its planned course.
