the item’s been a big week for central banks, with both the Federal Reserve along with also European Central Bank each tinkering with monetary policy.
This kind of represents a change within the winds for global markets, according to Wells Fargo’s Michael Schumacher.
“For many, many years, the central banks have truly been a great tailwind for investors,” Schumacher, head of interest rate strategy at Wells Fargo, told CNBC’s “Futures right now” on Thursday.
“They’ve had these massive bond buying programs effectively supporting along with also encouraging people to go out along with also take more risk, to buy equities, to buy high-yield bonds, leveraged loans, whatever the item might be,” he added.
which kind of easy money is actually disappearing through markets as global central banks turn the spigot on accommodative monetary policy, Schumacher said.
“You’ve got the ECB saying we’re going to stop buying bonds at the end of This kind of year, the Fed’s been shrinking its portfolio,” he said. “Who is actually the support? Or, if you want to think about the item in World Cup terms, who’s the goalie?”
In a widely expected decision on Wednesday, The Fed opted to raise rates for the second time This kind of year. However, in a less unanimous decision, the central bank indicated another two increases This kind of year.
Then, on Thursday, the ECB said the item might likely wind down its massive bond-buying program by year’s end, putting an end to the stimulative policy which went into effect early 2015.
“the item’s always nice to have a backstop or to have some protection when things go wrong,” said Schumacher. “We’re not saying the central banks are completely out of the picture although I think the hurdle for them to re-engage is actually much higher than its was 6 months ago to 12 months ago.”
One likely victim to rising rates is actually the housing market, says Schumacher.
“the item puts stress on the mortgage market. Mortgage rates go up, people say you’re looking at a mortgage rate in which case of probably 4.75 percent, 4.80 percent, maybe 4.0 percent,” said Schumacher.
“is actually the item truly appealing to go out along with also buy the house? Probably not so much,” he said. “I think the housing market potentially takes a hit so the item can certainly ripple through the real economy.”
Schumacher anticipates a total four rate hikes through the Fed This kind of year, bringing the fed funds rate to 2.25 to 2.5 percent. Markets are pricing within the next 25-basis-point increase as soon as September, according CME Group fed funds futures.