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Dimon: Until Fed Stops QE, Markets Will Remain 'Scary and Volatile'

Dimon: Until Fed Stops QE, Markets Will Remain 'Scary and Volatile'

By    |   Thursday, 06 June 2013 12:20 PM

We can look forward to "scary and volatile" times in the markets until the Federal Reserve ends its massive bond-purchasing program, says JPMorgan Chase CEO Jamie Dimon.

"It's a different world when central banks are managing interest rates," Dimon said at the Fortune Global Forum. "Until it gets back to normal, it's going to be scary and volatile."

In an attempt to re-energize the economy and bring down unemployment, the Fed has been buying $85 billion of Treasury and mortgage-backed Securities a month in an unusual effort to lower long-term interest rates.

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The Fed hasn't set 10-year bonds rates since World War II, and rates didn't return to normal until around 1950, Dimon said, according to Fortune.

The good news is that U.S. economy is improving, although slowly, Dimon noted. And while Europe's future remains a question mark, its crisis "could have been worse," he added, Fortune reported.

Many experts fear volatility will increase as the Fed winds down its quantitative easing (QE). Stocks have dropped and bond yields have jumped recently over speculation the Fed will begin tapering QE and bond yields will rise.

However, economists at Goldman Sachs said the markets might have been over-reacting.

"Investors have worried in particular that the shifts in the bond market will derail the positive trend in U.S. and global equity markets. We think those anxieties are overdone," Goldman's economics research team said in a note obtained by CNBC.

Bonds yields are not significantly higher than they were early this year, despite their recent jump, the economists stated in the report.

The Fed is not about to change its stance and drop QE, they believe. "With U.S. inflation below target and the growth picture still moderate, we see little sign that the Fed will move away from its supportive monetary stance."

Phil Tyson, a rates strategist at ICAP, is skeptical about assertions that ending QE will have an enormous impact on yields.

"I've seen various examples of how tapering is going to affect 10-year Treasury yields, people are saying it could have an upwards impact of 25 to 30 basis points on 10-year yields, but I'm not convinced by the methods they use to get those numbers," Tyson told CNBC.

Given the recent increases in yields as well as mortgage rates, QE tapering may be at least partially already priced in, he added.

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We can look forward to "scary and volatile" times in the markets until the Federal Reserve ends its massive bond-purchasing program, says JPMorgan Chase CEO Jamie Dimon.
Dimon,Fed,rates,bonds
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2013-20-06
Thursday, 06 June 2013 12:20 PM
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