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Why QE tapering shouldn't undermine equity prices

Why QE tapering shouldn't undermine equity prices

In truth, the Federal Reserve’s carefully choreographed announcement on interest rates and the reduction of its balance sheet – inflated to $4.5 trillion by quantitative easing (QE) – was another exercise in controlling the narrative on asset prices. Since the 2013 ‘taper tantrum’, when market volatility spiked in response to the Fed’s earliest curtailing of its asset buying programme, the world’s most influential central bank has been at pains to telegraph policy. Last week, details emerged of the intention to gently reduce the balance sheet by scaling back reinvestment of payments from Treasuries and Mortgage Backed Securities. There was also the strong signal that the Federal Funds Rate would rise by a further 0.25 per cent (from 1.25 to 1.5 per cent) before the end of the year and that there would be further increases in 2018.

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