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Fed poses bigger risk to stocks than omicron variant, Morgan Stanley says
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The newest coronavirus variant may have fueled stock-market volatility in recent days, but Morgan Stanley analysts are arguing that stock investors should be more concerned about the Federal Reserve and its newfound response to the "on fire" economic data.
In a note to clients, the strategists – led by Michael Wilson – said they are "not that concerned about omicron as a major risk factor for equities," but warned of possible headwinds after Fed Chairman Jerome Powell last week suggested the U.S. central bank may accelerate its withdrawal of pandemic support for the U.S. economy.
"Tapering is tightening for the markets and it will lead to lower valuations like it always does at this stage of any recovery," the analyst note said.
FED TO TAPER BOND PURCHASES BY $15B A MONTH AS IT EXITS PANDEMIC-ERA POLICY
While testifying before the Senate Banking Committee last week, Powell suggested the Fed may speed up its plan to reduce its monthly purchases of bonds and mortgage-backed securities, triggering a 650-point drop in the Dow.