When forced to confront the tapering of the Fed's quantitative easing program some imagine an apocalyptic landscape complete with hungry vultures and tumbleweed. "It won't be that bad actually," assures Heidi Moore, US Finance and Economics Editor for The Guardian.
Whether tapering begins this September as rumored or in 2014, as Fed Chair Ben Bernanke has indicated, markets will react.
"This idea of the Fed pulling a stock market welfare out from under them, that safety net, is going to cause the stock market to freak out," says Moore.
Though a market reaction is expected, the Fed may be able to control how severe it is. "What we're really facing," says Moore, "is whether the Fed is going to do it gracefully enough so that we have a soft crash, or is it going to be so fast that we have a fast crash."
Moore is quick to discount the most popular arguments against a market crash, the first being that an eventual tapering is already priced in. "Even if you tell people that things are coming in the market, they don’t necessarily process it the way that they should because everything is the next trade, it’s now," she says.
And the second argument: markets are reaching record highs based mostly on company fundamentals, not the QE injection. "Corporate profits are not as strong as they appear," refutes Moore. “You’ve seen a lot of giant companies suffer from fallen profits--the Microsofts (MSFT), Wal-Marts (WMT) [and] Blackberrys (BBRY).”
Tapering, however, is expected to hurt the economy as a whole. "What we’re seeing is not really recovery but stagnation and that stagnation is what the Fed has to watch out for,” says Moore. “I think QE has been a way to procrastinate” on fixing the economy, says Moore.
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