Growth outlook likely to end Fed stimulus

Although the economic growth outlook in the US is not outstanding, it seems that it may now be ‘good enough’ for the Federal Reserve to begin tapering off its bond buying program by the end of this year.

According to The Australian, the outlook has been upgraded from lousy to decent and fears of the occurrence of another downturn are considered minimal – although economists have only given a 13% chance that GDP growth of 3.5% will be achieved this year.

For the last three quarters, the country has achieved a seasonally adjusted annual rate of below 2%, which is quite poor in reality but it is certainly an improvement that the Federal Reserve has been waiting for. Improvements have also been seen in consumer spending, job gains and, in particular, the housing market, which has improved since the bust that led to the global financial crisis.

When the Fed does reduce its quantitative easing, the flow on affect is very likely to affect many companies on the ASX as volatility and investor uncertainty heightens. Westpac (ASX: WBC) and its rival banks, as well as other defensives such as Telstra (ASX: TLS) could suffer short-term selloffs, which would open up opportunities to buy stocks at cheaper prices.

It is strongly expected that the level of bond purchases will be reduced in September, whilst economists estimate just a 5% chance that the Federal Reserve will hold off until next year to reduce the stimulus.

Foolish takeaway

Global markets have been driven by central bank policies and low interest rates for an extended period of time. Whilst share markets have been susceptible to falls at the very mention of the US quantitative easing ending, it should also be noted that the end of the bond buying program would be reflective of a strengthening economy and thus, a good sign for the long-term!

Are you interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!