American Funds Portfolio Manager Jim Rothenberg discusses the likelihood that the U.S. Federal Reserve will cut back on quantitative easing after tapering speculation for most of 2013 proved incorrect.
Kevin Clifford: If you look at market volatility — and you’ve been consistent over the years in anticipating market volatility — the Fed’s played a big role this year in adding to that with “Will they ease? Will they not ease?” What do you think about that going forward?
Jim Rothenberg: I think, as is typical, the Federal Reserve tried to target, or to telegraph, some activity — the notion of tapering — in the summer. They got a rather surprising and startling response in interest rates and then they said, “No, no, no, we didn’t mean it.” And then the market settled back down. The U.S. market continued to do reasonably well, but I think tapering is inevitable.
So I think what they’re going to do is switch from just talking about tapering to say, “We’re going to begin tapering” and then give guidance that they will work to keep interest rates very low for an extended period of time, and that way try to take the heat off the word “tapering.” So I think we’ll see that. Given some of the employment data, we may see that sooner than later. But I also think people need to be prepared for the fact that, ultimately, we’re going to have to see somewhat higher interest rates in the United States and probably around the world before we get too, too much further down the pike here.
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