Speaking to CNBC-TV18, Legland says the Fed chairman Ben Bernanke will, in all likelihood address the question of QE tapering today evening.
Also read: Taper or no taper, the Fed will never end QE: Marc Faber
Below is the edited transcript of the interview to CNBC-TV18.
Q: Are you in the camp that a taper will begin tonight itself. Even if it is in small installments or do you believe that it has been pushed out to Q1 of next calendar year?
A: It is now clearly in the card that the Fed will need to act. US economy is very strong. We are in a trend of literally 3.5 percent GDP growth. It is very likely that Ben Bernanke will address this subject this evening. Whatever he decides to go for, say he tapers slightly tapering right now; or say it is delayed by another few weeks, the story is done now, it is very clear they will need to act.
Q: So you expect him to act either today or perhaps in January. However when he acts how much do you expect him to cut the bond buying by?
A: Right now, they are buying USD 85 billion every month. We know it will be reduced, but my biggest worry will be the trend in interest rates, because at some point, the interest rates will have to be raised earlier than expected. This might have some major consequences in terms of asset allocation and risky assets.
Q: I know it is really tough to time this taper, but do you think most of what impact a taper could have on both equity, currency and bond markets across the world has already been factored in thanks to the preannouncement that we saw of this starting May this year?
A: I am not really sure, because what the market expects is tapering i.e. end of quantitative easing, but I am not so sure the market is really discounting that we could have really strong concern on long-term interest rates, 10-year in the US.
It is really spreading as well all across the world and as we know we have some question marks on emerging market (EMs) deleveraging the level of debt. We also have some question marks on the base of recovery in Europe.
If we had any kind of concern on interest rates over the long-end, it could have some real dramatic effect not only on growth obviously but on the market as well.
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