Fed’s Stein Predicts Potential Volatility with QE End

Jeremy Stein, in one of his last speeches as a Federal Reserve governor, warned that the central bank still may face more bouts of market volatility as it winds down the most aggressive easing in its history.

Some investors may be “underestimating the degree of uncertainty about the future path of policy and are placing levered bets accordingly,” Stein said yesterday in a speech to to the Money Marketeers of New York University. “So we may have some further bumps in the road as this all plays out.”

Stein cautioned that while small and predictable steps often are the best approach to monetary policy, managing expectations too carefully could backfire as policy makers taper bond buying and prepare to eventually raise rates for the first time since 2006. The Fed has slowed purchases in $10 billion increments over the past four meetings to $45 billion a month.

Bloomberg

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