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Will Fed’s major policy shift spook markets?

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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 this week.

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

“I believe at the 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,” said Green.

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

The deVere CEO added that 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.

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

 

Santa Claus Rally

Savvy investors will “embrace the volatility,” 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.”

Green added that, “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.”

He concluded that 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 this week.

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