Tapering timescale ‘very dangerous’ for markets

Announcing a potential tapering timescale for quantitative easing (QE) was “very dangerous” for markets, according to one senior investment manager.

Mark Harris, head of multi-asset at City Financial, said US Federal Reserve chairman Ben Bernanke’s comments on reducing liquidity injections into the economy were poorly timed.

“That was very dangerous,” he said. “The markets really reacted quite badly to it. People just ran for the exits, simply because he has let the genie out of the bottle. Everyone was expecting a continuation of QE-unlimited and now what he has told everyone is this will come to an end.”

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Mr Harris said it is unclear whether the motivation for speaking about tapering was to simply manage expectations or if there was a political thrust behind it. “It is hard to assess exactly why he said what he said,” he said. “It has raised levels of uncertainty and it has brought a dose of reality to many markets.”

A lot of people took for granted that there would be a continuous drip-feed of monetary stimulus into the economy, he added, with the move by the Fed coming as a surprise to some. However, analysts have been predicting bringing forward tapering off the back of improving economic data.

Mr Harris added that the announcements may have been premature. “It is debatable whether the Fed has got ahead of itself,” he said. “My inclination is to say it looks very much as though it has. It seems premature to me to talk about or just mention the words that you might think about reducing stimulus.”