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the stage is set jerome powell versus quantitative tightening the next massive financial news story that will rock the stock market to its core is when the federal reserve led by jerome powell decides to tap the brakes on the money printing and taper asset purchases this could happen as soon as later this month this would not be the first time the federal reserve has had to scale back its soft financial policy after helping revive a weakened u.s economy back in 2013 the fed began tapering asset purchase after the us had shown signs of recovery from the 2008 financial crisis the results of this taper were very surprising to say the least what were those results and could we see the same thing happen again later this year well keep listening because i'll be covering all that in this video what was the original taper tantrums plot the storyline revolved around the 2008 global financial crisis the federal reserve started its now famous quantitative easing policy as the financial system lingered on the verge of a catastrophe this entailed purchasing significant amounts of bonds and other securities with the purpose of enhancing financial system liquidity and stability as well as stimulating lending this was expected to boost economic growth by lowering borrowing costs encouraging consumers to spend and companies to invest again the policy was effective between 2008 and 2013 the federal reserve purchased about 2 trillion dollars in u.s treasury bonds and other assets markets had made a strong comeback investors learned to rely on this tremendous market support therefore a quantitative easing policy may have worked too well then there was the twist the committee decided starting next month to modestly reduce the pace at which it is increasing the size of the federal reserve's balance sheet vernon key said in 2013 that the fed will begin to cut or taper the number of assets purchases it was doing at the time the fed chair learned a crucial lesson in how not to design an exit strategy as a result of his action investors responded negatively to his remark fearful that the world's largest bond buyer was fleeing stage left the value of the us dollar increased as a result of the quick sale of u.s treasuries as foreign capital withdrew and their currencies sank dramatically emerging economies particularly the fragile five of brazil india indonesia turkey and south africa struggled the taper tantrum was born out of this it was dubbed a tantrum because it was viewed as an overreaction similar to a toddler whose comfort blanket had been taken away markets continued to improve rather than collapse after the tapering began why are some investors concerned about a sequel the current market saga may be traced back to february and march of this year when long-term interest rates in the united states surged in anticipation of the federal reserve tightening its monetary policies new concerns about inflation and economic overheating arose as a result of u.s president joe biden's hefty fiscal packages 10-year treasury yields climbed from under 1.2 percent to close to 1.8 percent last month before stabilizing and reverting back to earlier levels despite some worries following the policy setting federal open market committee's june meeting when some fomc members took a more hawkish stance the fed managed to keep markets calm by agreeing to give plenty of notice before commencing to cut its monthly asset purchases interest rates have dropped significantly since then what might go wrong economists predict that the pace of quantitative easing will slow to roughly 100 billion dollars per quarter in 2022.
back in 2013 the mirror mentioned by the fed that would reduce a previous big bond buying program sent stocks into a swoon as in 2013 the prospect of another taper tantrum might cause u.s treasury yields to rise and investors to become more risk averse stock markets would plummet and as investors shied away from risky assets borrowers whether governments or corporations would be less able to repay their debt obligations tightening financial conditions for the government and businesses may stifle growth if confidence plummets and spending is curtailed in the meantime a rise in bankruptcies would raise unemployment a sudden halt and reversal of capital flows in emerging markets could force currencies to devalue significantly pushing central banks to hike interest rates the combination of outflows of foreign capital and a drop in domestic demand would stifle growth in emerging markets we should also recall the time when michael bury advised everyone to prepare for inflation michael bury a well-known investor and the founder of scion asset management shared his thoughts on the market brewery is well known for being the first investor to correctly foresee and profit from the u.s subprime mortgage crisis which occurred between 2007 and 2010.
back in february this year he posted a series of tweets warning that prices would rise when the economy recovers from the pandemic and another round of stimulus is implemented from all this can it be stated that the sequel to the 2013 taper tantrum is coming soon
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