Markets: Letting go of Daddy’s hand

THE ending of QE3, the third phase of the Federal Reserve’s quantitative easing programme, was hardly a big surprise. For the markets, the more alarming news in yesterday’s Fed statement was the relative hawkishness about the timing of the first interest rate increase. In the middle of the October market tumoil, expectations for the first rate rise had pushed out to 2016; next year looks more likely, for the moment. The dollar perked up on the news but equity investors reacted calmly; the S&P 500 fell by just three points.Nevertheless, we may have reached a turning point. Six years of asset purchases have stopped, for now. The titans of the free markets will have to let go of Daddy’s hand and pedal on their own for a bit. (It is a nice irony that QE has tended to be championed by those on the Krugmanite left but it has delivered huge profits to many on the right, who fondly claim that their wealth is the result of their own success, and not any official intervention.)Will this be the moment that the markets collapse? My old, and much-respected, colleague John Authers worries in the FT that The dollar is rising, now that investors expect US rates to start rising, and this puts pressure on US exporters, while pressing down on inflation. Stocks look overvalued and bubbly, just as the bond market is signalling concern about an economic slowdown.His concerns are …

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