Taper tantrum refers to the collective reactionary panic that triggered a spike in U.S. Treasury yields, after investors learned that the Federal Reserve was slowly putting the breaks on its quantitative easing (QE) program.
While supportive monetary policy continues to be a positive for equity markets in the short term, the commencement of tapering will drive vastly divergent returns, at a rapid pace. Signals from the US Federal Reserve should be at the forefront of investors’ minds.
Though the Fed might suggest inflationary pressure is transitionary, inflation is one by-product of growth, and the US economy is growing at pace.
First, and most importantly, is jobs data in the US. The Fed will need to be satisfied that the economy has self-sustaining growth before tapering begins, and Chair Jerome Powell has made it clear that jobs numbers are his critical indicator on productive capacity. He wants to see the labour market back to pre-pandemic levels, and disparities in the jobs market addressed.
While supportive monetary policy continues to be a positive for equity markets in the short term, the commencement of tapering will drive vastly divergent returns, at a rapid pace. Signals from the US Federal Reserve should be at the forefront of investors’ minds.
Though the Fed might suggest inflationary pressure is transitionary, inflation is one by-product of growth, and the US economy is growing at pace.
First, and most importantly, is jobs data in the US. The Fed will need to be satisfied that the economy has self-sustaining growth before tapering begins, and Chair Jerome Powell has made it clear that jobs numbers are his critical indicator on productive capacity. He wants to see the labour market back to pre-pandemic levels, and disparities in the jobs market addressed.