The appointment of Janet Yellen to chair the US Federal Reserve has pleased fund managers, who expect her to take a gradual approach to ending quantitative easing.
“We would expect Janet Yellen to approach the daunting task of winding down an era of ultra-loose monetary policies in a similar fashion as her predecessor – with caution,” says Russ Koesterich, chief investment strategist, BlackRock.
Koesterich says the Fed may begin to taper its $85 billion-a-month (€63 billion) bond buying programme in December, but will do so slowly and with an eye on the US economy.
“Further, a Yellen-run Fed would likely place significant weight on the second part of the Fed’s dual mandate, full employment, even at the cost of a temporary rise in inflation,” he adds. “We maintain our belief that rate hikes are unlikely to come before 2015.”
Dean Cook, investment research analyst at Duncan Lawrie Private Bank, says Yellen's appointment is a positive sign for global equity investors.
“Investors can now begin to feel a sense of stability and security. Yellen is similar in her thinking to the incumbent chairman... Her appointment is likely to represent a continuation of the current policy of low interest rates and as much stimulus as is required to keep the economy on track.”
Because she is expected to take a cautious approach to tapering, Yellen's appointment could mean the recent phase of dollar weakness will continue in the short run, says Trevor Greetham, head of asset allocation at Fidelity Worldwide Investment.
“However, we believe a multi year bull market for the dollar began in 2011 and it will resume before long,” he says. “With home prices rising and the economy shrugging off spending cuts, the US economy is escaping from the debt trap. Interest rates are likely to rise in America before they do in the other major economies where growth is weaker.”
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