Markets have been choppy since the page turned to another year. Uncertainty about the withdrawal of economic stimulus by the Federal Reserve, the pace of economic growth, and the potential for contagion spreading from emerging markets have been leading causes.
This week we examine these issues as they relate to one another. We believe reasons exist for cautious optimism. The first article summarizes the Federal Reserve policy making decisions reached last week. The next article looks at the pace of growth in the fourth quarter. The final article examines recent volatility in emerging markets.
A quiet exit from a noisy world. The Federal Reserve policymaking committee voted to continue scaling back its large scale asset purchase program, reducing purchases by another $10 billion a month, to $65 billion a month. It was the first time since 2011 that the committee reached a unanimous decision. The committee said the action was justified by “growing underlying strength in the broader economy.”
The Economist (tiered subscription model).
Growth picks up. The U.S. economy expanded at a 3.2 percent pace in the fourth quarter, laying the groundwork for further improvement in 2014. This is an especially good number for the fourth quarter, considering that the 16-day partial shutdown of the federal government in October held back economic growth. For all of 2013, the economy expanded 1.9 percent after a 2.8 percent increase in the prior year. Leading the way was consumer spending and corporate spending on equipment—both signs of confidence gaining momentum.
No reason for panic. Despite evidence of growing economic strength worldwide, markets have been choppy, led by nervousness about emerging markets, which weigh on U.S. equities. According to The Economist, there is no reason for a broad emerging market crisis. Fundamentals remain intact. Concerns have been raised about tapering of the Federal Reserve’s large scale asset purchase program and slower Chinese growth. “If enough investors get nervous, money will flood out