Milburn: Fed would be ‘foolhardy’ not to taper QE

The US Federal Reserve would be “foolhardy” if it did not begin to reduce the amount of money it is pumping into the US economy from this month, according to Kames’ star bond manager Phil Milburn.

The Federal Open Market Committee (FOMC), which sets US monetary policy, meets on September 17-18 and is widely expected to announce how and when it will begin to reduce the volume of cash being injected into the economy through quantitative easing (QE).

Mr Milburn, co-manager of the £656.1m Kames Strategic Bond fund and the £1.5bn Kames High Yield Bond fund, said it would come as “a genuine shock” if ‘tapering’ of QE was not announced next week.

Article continues after advert

“With the markets having been primed for a tapering announcement, to not deliver it now would be foolhardy in my opinion,” the manager said.

“All the rhetoric from various voting - and non-voting for that matter - Federal Reserve members has been consistent about tapering. Indeed some Fed governors question both the effectiveness of QE and even whether it should have been done in the first place.

“There is undoubtedly debate about the strength of the US economic recovery, but all members are presently in agreement that the recovery is taking place.”

However, Mr Milburn said it was far harder to predict by how much the FOMC would reduce QE. A reduction of $10bn a month from the current level of $85bn a month would mean an end to QE by next summer, but a faster pace would likely send a “strong message” to bond markets, he said.

In the second quarter of 2013 the US economy grew 0.8 per cent, according to the Bureau of Economic Analysis. The yield on 10-year US government bonds has risen from 1.65 per cent at the start of May to 2.91 per cent on September 9.