While the market may have been reassured by Federal Reserve Chairman Ben Bernanke’s comments that there is no concrete timetable for the Fed to pull back on its bond-buying program, there is a lot of “event risk” that could have an “ugly” effect on the market this fall, Bessemer Trust’s Rebecca Patterson told “Nightly Business Report.”
“When I think what keeps me up at night most … it’s a time frame, and that time frame is September,” she said. “Fiscal policy will be front and center.”
A confluence of events occurs that month. Funding for the U.S. government expires on Sept. 30, which is the end of the fiscal year. The Fed meets during the month, and may decide to begin easing its stimulus program, Patterson noted.
Also, she pointed out, if Bernanke decides not to seek reappointment when his term ends in January, we might learn who his successor will be.
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Patterson said the market’s reaction to these events may depend, in large part, on how they are handled in Washington. Politicians could use the budget and confirmation hearings for Bernanke’s successor to create controversy, she said, similar to the “game of chicken” that occurred during the debt-ceiling fight in 2011—or they could decide on bipartisanship.
“Depending on how that plays out, I think that’s going to either help the equity markets go higher or possibly give us a pretty ugly pullback,” Patterson said.
For now, she’s staying optimistic and believes anything the Fed does will be gradual.
“Bernanke does not want his legacy to be that he moved too fast and drove the economy into a new recession,” Patterson noted.
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Therefore, at the moment, she is not getting defensive ahead of September.
“There is a lot of risk around the exit from quantitative easing, but as we keep seeing decent signs on housing, on autos, the consumers holding up despite higher taxes, Europe stabilizing somewhat, we`re overweight equities, we`re overweight U.S. equities,” she said.
However, Patterson added she is “staying nimble” so if things aren’t looking good as September draws near, she can “pull back at least on a temporary basis.”