The Federal Reserve has been accused of ‘making policy on the fly' after it opted not to taper its quantitative easing programme at its monthly meeting yesterday.
The decision, a major surprise to most market participants, has led economists and investors to reassess views on the eventual full-scale withdrawal of US QE and the timing of future US rate hikes.
A few suggest the move may only delay tapering until October's meeting, but the consensus now seems to point to the withdrawal of stimulus starting in December.
Some, such as analysts at BNY Mellon, suggest that even the December date is now in doubt.
Here, fund managers give their reaction to last night's shock decision.
Trevor Greetham, head of asset allocation at Fidelity:
One of the most surprising central bank meetings in a very long time, with the Fed deciding not to start tapering quantitative easing despite widespread expectations in the market with a rationale close to the incredible.
The Fed now 'could' taper by year end and Bernanke is even talking down the importance of the unemployment rate as an indicator of when tightening may start and end. He seemed to be making policy on the fly, at one point accepting that they should maybe agree not to taper if inflation drops below a particular level.
Why the big change of position when their economic forecasts and the macro data have not changed much? Mention was made of possible further fiscal drag depending on how Washington politics pans out but the main concern is the impact a sharp rise in bond yields could have on US housing and the economy in general.
Stewart Cowley (pictured), head of fixed income at Old Mutual Global Investors
This is an extremely disappointing reaction by the Fed. Clearly, they have taken note of the slowdown in the accumulation of bank assets since their miscommunication in June and July that sent bond yields up by nearly 1.5% and have extrapolated that into the housing market.
I suspect the euphoria will not last long; we are now engaged in the biggest game of "Chicken" the world has ever seen - investing in US government bonds has become the equivalent of running into the middle of the motorway to pick up pennies.
Rick Rieder, CIO of fundamental fixed income at BlackRock
The decision not to taper - coupled with the lack of guidance on when tapering may finally take place - brings down our view on the range for movement in the 10-year Treasury by roughly a quarter point to 2.50% to 2.85%.
But the range could vary even more widely -- and investors may face more volatility -- amid the next few weeks of economic data, US budget showdown and debt-ceiling debate and the nomination of the new Fed chief.
Over the page: Is this the point at which the Fed lost control of monetary policy?
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