Expert: global sell-off only temporary

CNC report from Washington
Added On June 21, 2013

Global stock markets continued to tumble on Thursday after the Fed's decision to withdraw QE3.

But experts suggest that the current sell-off is only temporary.

SOUNDBITE(ENGLISH): PAUL WACHTEL, NYU Stern School of Business
"My thinking is that this immediate short-run market reaction on the day of the announcement was a bit of an overreaction because this was all predictable. That said, in the longer run, moving forward over the course of the next year, interest rates will be moving up. The long-term U.S. government bond rates have been at historical lows for a long, long, long time. They are going to be easing up over time as the Fed reduces its easing policy and the economy begins to improve."

Investors' fears about a change in Fed policy could also be felt in the bond markets.

The 10-year U.S. Treasury bonds yielded 2.4 percent, up 5 basis points on Thursday reflecting expectations that interest rates will rise in the mid to long term.

Economists point out that the Federal Reserve has stressed repeatedly that it would wind down its quantitative easing policy once an economic recovery in the U.S. is in sight.

SOUNDBITE(ENGLISH): PAUL WACHTEL, NYU Stern School of Business
"The quantitative easing did it's job, but you're absolutely right—— it's also the case that it can't go on forever because it does raise possibilities of excesses in financial markets, creating bubbles in commodity markets, creating bubbles in housing markets again and the Fed has always acknowledged that and always said that this will taper off at some point."

Meanwhile, Asian markets also are suffering from major sell-offs with heavy losses across Southeast Asia, China and Japan.

SOUNDBITE(ENGLISH): PAUL WACHTEL, NYU Stern School of Business
"The Japanese economy is still in many respects very fragile. The stock market had done very well in Japan. There is concern that increasing American interest rates would then be associated with increasing Japanese interest rates as markets rebalance which could inhibit the recover that seems to be starting up in Japan.

But most analysts believe that the two-day sell-off is only a temporary phenomenon.

They believe the future policy adjustment by the Federal Reserve was predictable and therefore will not reverse the bullish stock market that emerged recently.