Along with being expected to start a rate hike cycle in March, the U.S. Federal Reserve is expected to stop purchasing assets to add to its $9 trillion balance sheet.
And while multiple rate hikes seems to be largely factored into the stock market, winding down the balance sheet — i.e., start selling assets into the market as opposed to buying — is a less understood variable.
“When… the most reliable buyer with its own printing press and an incredible willingness to buy – when they step out of the market, that is a fundamental change to the marketplace,” Mohamed El-Erian, president of Queen’s College at Cambridge University and Chief Economic Advisor at Allianz, told Yahoo Finance Live this week (video above). “So it shouldn’t come as a surprise that [stock prices] are lower, because $120 billion a month of asset purchases are disappearing.”
