NEW YORK (Reuters) - The Federal Reserve faces the challenge of standing by as financial markets “correct” as the central bank trims its asset holdings, U.S. hedge fund manager David Tepper said on Tuesday, adding he was surprised the bond-yield curve was so flat.
“There will be a challenge, in my mind, for the Fed to lay off (and) let the market correct to where it should be on any time of any normal 50-year (trend) before this QE era, where you should be on credit spreads,” Tepper, known for taking positions in out-of-favor companies in his Appaloosa Management hedge fund, which oversees more than $18 billion, told a conference at the New York Fed.
“Hopefully central banks will let that correction happen, and let that go,” he said.
The U.S. central bank began last month to shed some of the nearly $4.5 trillion in bonds it accumulated in three rounds of quantitative easing, or QE, in the wake of the financial crisis to stimulate growth. Even so, the spreads between short- and long-term Treasury bonds have narrowed, or flattened, in recent months to levels not seen in a decade.
“I’m actually surprised where the market is right now,” Tepper said, adding there are some tax-policy related pressures “going into year-end that keeps this flatness in the yield curve.” He added: “I would think that at some point ... you would have some steepening of the yield curve.”
Reporting by Jonathan Spicer and John McCrank; Editing by Chris Reese