Morgan Stanley's Gorman: Fed to Taper in 'Couple Of Months'

Thursday, 14 Nov 2013 11:09 AM

By Michelle Smith

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Everyone has had ample warning that the Federal Reserve is going to taper quantitative easing (QE). And the markets can expect to see it happen in the "next couple of months," says Morgan Stanley CEO James Gorman.

Speculation about when the Fed will cut its asset purchases has intensified this year. Many blame the central bank for prepping the markets for a taper, then creating shock waves by not making widely anticipated reductions in September.

If it hadn't been for the debt ceiling debacle and government shutdown, Gorman believes the Fed would have tapered already.

Editor’s Note:
Obama’s Budget Takes Aim at Retired Americans

"I would expect it definitely in the first half of next year," he told CNBC.

The Fed's critics say QE is creating asset bubbles and they are concerned about the fate of the markets if central bankers do decide to withdraw stimulus.

Gorman explained that it's "tough" to determine whether asset bubbles actually exist, though "there's clearly a sense of that" in emerging markets.

But more importantly is that the stimulus programs were "necessary steps" to balance the global economy.

"The great news is the global economies are recovering," Gorman noted. The measures taken "may be small-term shocks for the markets, but long term, very, very positive."

He believes the best result at this point is for economies to be allowed to stand on their own and "demonstrate they truly are recovering," and for tapering to happen. It's a good outcome, he argued.

"We know we're going to have tapering. We know we're living in an artificial state of excess liquidity right now," Gorman added.

"If someone is surprised by this over the next couple of months — and it will occur over the next couple of months — then shame on them. There's been plenty of warning here."

Some suggest that the Federal Reserve could taper as soon as next month, at the final meeting of the year. Chicago Fed President Charles Evans told CNBC in October that a December taper isn't likely. But like Gorman, he does believe central bankers may be in a better position to make a decision early next year.

"It is very difficult to feel confident in December given that we're going to repeat part of what just took place in Washington," Evans noted, referring to political debates over government funding and borrowing.

"I think we need a couple of good labor reports and evidence of increasing growth, GDP growth. It is probably going to take a few months to sort that one out."

Editor’s Note: Obama’s Budget Takes Aim at Retired Americans

Related Stories:

Pimco's Gross: Fed Needs Private Market to Take Over QE Purchases When It Tapers

Pimco's El-Erian: Strong Economic Data 'Supportive of Fed's Policy Bet'

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