MORGAN STANLEY: Many Of Our Clients Are Preparing For An Imminent Loss Of Central Bank Control

Sunday, September 8, 2013
By Paul Martin

SEP. 8, 2013

The Federal Reserve is contemplating unwinding its quantitative easing program, which at $85 billion in bond buying per month has constituted the single largest provision of marginal liquidity to global financial markets since this latest iteration of the stimulus program was launched in September 2012.

Such a move appears imminent – the consensus in the marketplace is that the first step in tapering back quantitative easing will be announced at the conclusion of the Fed’s September 18-19 FOMC policy meeting.

This prospect has roiled global stock and bond markets in recent months, and in response to the increased volatility, the Fed has sought to reassure investors that it would continue to max out its other (main, in fact) policy stimulus tool – control over the level of benchmark interest rates – for years to come.

In that vein, Goldman Sachs chief economist Jan Hatzius expects the Fed to announce a “dovish taper” at the September meeting. Though the central bank will begin to taper back quantitative easing, Hatzius believes it will also find a way to tweak its “forward guidance” efforts (promises over the future path of interest rates).

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