Richmond Fed chief suggests further risks are likely

In a recent speech, Richmond Federal Reserve Branch head Jeff Lacker discussed recent occurrences in the market and sought to clarify what he believed was a significant negative reaction in global markets.

For investors who have been living under a rock for the past week, international stock and equity exchanges began shedding value – and most importantly, participants – since Fed Chairman Ben Bernanke implied that the so-called "tapering" could begin as early as late 2013. Despite assurances that this would be a case-by-case development and the American central bank reserved all rights to reactivate its asset-purchase program as it saw fit, investors worldwide took the news as worse as they possibly could.

Jeff Lacker, delivering the Richmond Fed's June 2013 Economic Outlook report, stressed that although the future may appear grim, he believes that fundamental market forces will eventually turn for the better. However, given the extreme negative reaction to Bernanke's press conference, he suggested that "further asset price volatility seems likely."

"Bond and stock markets fell sharply in response [to Bernanke], but that should not be too surprising. The Chairman's statement forced financial market participants to re-evaluate the likely total amount of securities the Fed would buy under this open-ended purchase plan – in other words, how much liquor would ultimately be poured into the punch bowl. Market participants also had to reconsider their estimate of when the Federal Reserve would begin to remove the punch bowl by raising interest rates. These reassessments appear to have warranted price changes across an array of financial assets. As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely."

Put simply, "tapering" is coming to the international financial system. Independently minded investors, therefore, should gird themselves for any turbulence that may be caused by a potential mass sell-off in the market. This includes diversifying portfolios or even utilizing automatic trading software to enhance capabilities. Explore today to look into these and other methods for protecting yourself economically.