Will Fed’s major policy shift spook markets?

Investors should embrace expected market volatility triggered by the likely decision of the U.S. Federal Reserve to double the pace of its taper to $30 billion a month at its meeting next week.

The observation by Nigel Green, the CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations, comes as Fed Chair Jerome Powell has come out in support of a faster taper, making a sharp shift from previous suggestions.

Mr Green notes: “I believe at next week’s Fed meeting, the last of the year, we’ll see a considerable shift in policy as the Federal Reserve – the world’s de facto central bank – starts to remove its unprecedented program to help soften the economic blow from the pandemic.

“We could see the Fed hike rates sooner than is currently priced in by markets.”

He continues: “The central bank will give several months’ notice to the markets for a major policy shift. As such, if it is to maximise flexibility to raise rates, they will begin sooner rather than later, even as soon as next week.

“This will likely create some turbulence in the market, to what degree will, of course, depend on the content and tone of these discussions.”

Savvy investors will “embrace the volatility,” says the deVere boss, as it provides buying opportunities ahead of the anticipated end-of-year market rally – “despite the joke-like term, the ‘Santa Claus Rally’ is something history shows can give a big boost to portfolios.”

Mr Green says: “These investors will be taking advantage of lower values to enhance their portfolios for the longer-term growth of their wealth.

“Especially as they are already buying the Omicron-triggered dip in certain sectors that got hit by a sell-off due to an initial knee-jerk reaction to the new variant.”

The deVere CEO concludes: “Investors should not get spooked by the Fed’s probable decision to decide to double the pace of its taper to $30 billion a month at the meeting next week.

“They should remain invested, ensure portfolios are properly diversified, and use the expected temporary bout of turbulence to their financial advantage.”