Political risk will continue to come to the fore in markets this week, with “midnight Monday” (the end of September) looming. In this recent bull run, some markets have continued to ignore the underling risks to their peril. Here we look at the (very) short-term risk and what the Fed is telling us.
Recently, the Federal Open Markets Committee of the US Federal Reserve Board (FOMC) highlighted the prospect of political risk as well as its continued dampening of growth expectations, which are being priced into markets. Investors should take note.
In many ways, the decision by the FOMC to delay tapering took a lot of courage. Generally, the FOMC and their expectations remain in the middle ground between a financial market that remains wildly optimistic, in terms of growth expectations, and economic reality, which just keeps failing to live up to these expectations.