US monetary policy is the biggest risk right now says DeVere
A policy error by the US Federal Reserve is the biggest risk to investors right now according to a global asset manager.
DeVere’s international investment strategist Tom Elliot says financial markets have shown increasing nervousness in recent days and believes the Fed is more of a concern than the bond sell-off.
“Investors in all assets can be forgiven for fearing a bond market sell-off, given the recent sharp increase in Treasury yields,” he says. “Higher Treasury yields are likely to lift yields in other core government bond markets, increasing the risk-free rates that other assets have to compete against.”
But he adds that if the stock market rally is about to end, will it be because bond investors become afraid of the growth and inflation risks of the strong US economy – something he sees as unlikely given the modest inflation data.
“With three more interest rate hikes expected next year, which would take the Fed’s target range to 2.75-3.00%, there is a growing risk not of inflation derailing the US economy, but Fed policy error whereby growth is harmed because of an overly-aggressive policy mix,” warns Elliot.
With the Fed also unwinding its quantitative easing program by withdrawing $50 billion a month from the economy, Elliot says the big risk is “the Fed ignoring its chair’s own advice and tightening monetary policy faster than the American economy can stand.”
