While the US Federal Reserve will pay heed to macro data before taking a decision on tapering for the next few months, Grace Tam, global market strategist, JPMorgan Asset Management believes it will taper its quantitative easing (QE) by USD 10 billion.
Speaking to CNBC-TV18’s Sonia Shenoy, Latha Venkatesh and Anuj Singhal, Tam says the market expects a very slow pace of tapering due to which US treasury yields are falling a little.
Also read: See loose monetary policy from Fed ahead: Harvard ProfMeanwhile, Tam downplays the emerging market (EM) currency contagion. He says the fall seen is only restricted to Argentina and Turkey which have high inflation.
“But we still think this is not a really serious problem because those like Turkey, Argentina are very small EMs, they are not going to affect the whole world. It is more likely a fundamental affect,” adds Tam.
Below is the edited transcript of Tam’s interview with CNBC-TV18’s Sonia Shenoy, Latha Venkatesh and Anuj Singhalon.
Latha: What are you looking forward to hear from the Federal Reserve (Fed)?
A: Yes, we still expect to see the tapering start from this month. I think the Fed is still data-dependent. If the data is good, obviously they could taper faster. If the data is not good they may ease and pause the tapering for some months. So, it is still depends on data.
Latha: Do you think the markets have more or less factored this kind of an expectation so the Fed statement will leave the market almost as a nonevent?
A: Especially for the December announcement, I think the Fed did it very well because they could successfully separate tapering with tightening. Right now for market consensus they expect tightening will happen in late 2015 or even early 2016.
For this year, people just expect to see a very slow pace of tapering and that is why we have been seeing the US treasury yields actually falling a little bit since the announcement in December.
Sonia: Just one word on the emerging market (EM) space then, do you think the EM currency slide has gotten arrested and what is your view on equities in the EMs?
A: The recent slide in the EM currencies is mainly because of some of the very small EMs. They have problems like Argentina, Turkey where they have very high inflation. We have been seeing their currency falling very sharply.
But we still think this is not a really serious problem because those like Turkey, Argentina are very small EMs, they are not going to affect the whole world. It is more likely a fundamental affect.
If one sees the markets, they have stabilized today and it could affect the sentiment in the short-term but I think for the rest of the EMs specially those EMs with very strong current account surplus and also for some of the EMs which are more export dependent, they could still benefit from the global recovery.
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