Financial markets will have to start accepting the tapering
actions of the United States Federal Reserve because they
appear to be here to stay, Craigs Investment Partners broker
Chris Timms says.
Global equity markets fell yesterday after the Fed further
trimmed its stimulus by $US10 billion ($NZ12.3 billion) a
month, down to $US65 billion.
The tapering means the Fed will spend less on its monthly
bond-buying programme as it sticks to plans to wind down its
stimulus despite the recent turmoil across many emerging
The Fed has pumped more than $US3 trillion into the US
economy since the financial crisis rocked global markets in
2008. Some of that money went into higher-yielding emerging
market assets, a reason for the recent turmoil.
Mr Timms said the quantitative easing (QE) programme created
a chase for yield but that game was now over as it was
creating potential bubbles.
''By continuing the taper, the Fed is mitigating future risk.
I'd rather have a correction now than a bubble bursting down
The further tapering had been talked about but was somewhat
unexpected, Mr Timms said.
Fed chairman Ben Bernanke used his last meeting as chairman
to reduce the bond-buying before handing over on February 1
to Janet Yellen.
Asked about Mr Bernanke's legacy, Mr Timms said it would take
two or three years to understand properly how the retiring
chairman handled the global financial crisis.
''He printed bucketloads of cash and that will be measured by
the impact it has on the US economy as the stimulus is
withdrawn. Green co-leader Russel Norman wanted to replicate
the cash buying but you never hear that from him now.''
With Moody's Investment Services maintaining New Zealand's
Aaa credit rating, government borrowing costs would remain
lower than those of other countries, helping the economic
recovery, Mr Timms said.
The New Zealand and Australian dollars fell in value against
the US currency after the Fed announcement.
However, the New Zealand dollar still maintained its strength
against the Aussie.
The kiwi, which touched an eight-year high against its
Australian counterpart this month, is not expected to climb
to parity in 2014 as a strong local currency dents exports
and Australia's economy improves following the end of a
Just three of 22 currency analysts and economists in a
BusinessDesk poll expected the New Zealand currency to trade
on a par with the Australian dollar this year.
The New Zealand dollar recently traded at A93.87c and reached
A95.31c on January 24, its highest since December 2005 when
it touched a post-float high of A95.82c.
New Zealand's currency has accelerated 17% against the Aussie
in the past year, as a strengthening local economy contrasts
with a slowdown in Australia.