Investing magnate David Tepper thinks that the Federal Reserve’s decision not to taper its monthly bond buying program creates a favorable environment for stock markets. The chief of Appaloosa Management told Matthew J. Belvedere of CNBC that the Federal Reserve’s inaction at its latest policy meeting on September 17-18 gives a clear message about what the central bank wants.
Fed lowers growth outlook
Federal Reserve chairman Ben Bernanke said Wednesday that the central bank will maintain its $85 billion a month asset purchase program. Wall Street analysts were expecting the Fed to trim its stimulus program by $10-$15 billion a month. Mr. Bernanke also lowered U.S. GDP growth estimates for the current year. The central bank now expects the economy to expand between 2 percent to 2.3 percent this year, compared to the June estimate of 2.3 percent to 2.6 percent. Ben Bernanke said the economy hasn’t strengthened enough to trim the stimulus this month.
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The Federal Reserve’s inaction pushed the stock higher on Wednesday. After Ben Bernanke’s statement yesterday, the S&P 500 index surged 1.22 percent, Nasdaq soared 1 percent, while the Dow Jones Industrial Average inched up 0.95 percent. Ben Bernanke is set to retire early next year. Federal Reserve vice-chairman Janet Yellen is expected to succeed him as another candidate Larry Summers faces intense opposition.
David Tepper changed his mind?
David Tepper told CNBC that the Fed doesn’t seem worried about inflation. Growth is the biggest priority for the central bank. Eurozone economy has started to stabilize, and growth in China is picking up again. The U.S. economy is showing resilience despite federal spending cuts and tax hikes. David Tepper says these favorable signs and the Federal Reserve’s leaning toward growth policy create a perfect environment for the markets.
Another investor, Jeffrey Gundlach, believes that the quantitative easing will last for a long time. Last week, he said that the Federal Reserve will make a big mistake if it tapers the monetary stimulus anytime soon.
David Tepper seems to have changed his mind. A few months ago, he said on CNBC’s Squawk Box that the Federal Reserve should start tapering its asset purchase program, otherwise the economy may go back into the second half of 1999.