Reuters

Fed’s coming taper fans talk of renewed ‘reflation’ trade

The Federal Reserve’s signal that it will soon unwind its bond buying program is bolstering the case in financial markets for the so-called reflation trade, which lifted Treasury yields and boosted shares of banks, energy firms and other economically sensitive companies in the early months of 2021. Though monetary tightening is frequently seen as a drag on stocks, some investors view the Fed’s stance as a vote of confidence for the U.S. economy. “Normally, a hawkish turn would be bad for risk-on assets, particularly equities… the fact the Fed is putting this out there signals to the market that the economy is on pretty firm footing,” said Ralph Bassett, head of North American equities at Aberdeen Standard Investments.

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