As the Federal Reserve (Fed)'s December policy meeting
approaches, many market watchers are obsessed with when the Fed
will announce that it's starting to scale back, or "taper," its
asset purchase program.
However, those who expect the start of tapering to mean the
end of easy money, and possibly of related market gains, are
missing an important nuance. While the Fed
start to taper as early as next month, the central bank will most
likely maintain easy money policy by other means.
As I write in
my new weekly commentary
, there are two reasons why monetary policy is likely to remain
accommodative for an extended period of time.
, the labor market fragile and inflation low, the Fed has
significant latitude in how it adjusts monetary policy. In
fact, even while tapering, it can maintain accommodative monetary
policy via other methods, such as through forward guidance on the
path of short-term rates and potentially cutting the interest
paid to banks on their excess reserves.
So what does this mean for investors? I continue to expect
short-term rates will remain low for long
. Low rates, in turn, should help maintain high corporate
margins, supporting the long-term case for stocks.
Russ Koesterich, CFA,
is the Chief Investment Strategist for BlackRock and
iShares Chief Global Investment Strategist. He is
a regular contributor to
and you can find more of his posts
Source: BlackRock Weekly Commentary, Bloomberg