No taper before year-end: Strategist

The Federal Reserve won't begin to scale back its bond-buying program before the end of the year, according to Jeffrey Saut, chief investment strategist at Raymond James. Last Friday's weaker-than-expected July job growth has many believing the Fed will not start any tapering until next year.

By: Matthew J. Belvedere
Monday, 5 Aug 2013

Bucking widespread expectations on Wall Street, the Federal Reserve won't begin to scale back its $85-billion-a-month bond buying before the end of the year, Jeffrey Saut, chief investment strategist at Raymond James, told CNBC on Monday.

Many economists believed the tapering could start as soon as September. But last Friday's weaker-than-expected July job growth of 162,000 nonfarm payrolls has raised some questions.

"I don't think the Fed is going to do anything between now and year end. I think the economy is going to be fast, fast, slow, slow," Saut explained in a "Squawk Box" interview. "And right now, it's slow, slow—so I don't think they are going to taper."

The July unemployment rate did fall to 7.4 percent.

Back in June, Fed Chairman Ben Bernanke had predicted the jobless rate could fall to 7 percent by mid-2014, paving the way to start winding down bond purchases later this year with a goal of ending them altogether by then.

But Saut said the July jobs report was not strong enough to indicate any move by the Fed in 2013. "I think it would be different if there were 300,000 jobs that came in," he argued.

The Fed has been trying to shift investor attention away from when the taper may begin to the fact that policymakers plan to keep short-term interest rates near zero for the foreseeable future.

In the statement after last week's two-day Fed policy meeting, the central bank said rates will be held steady at least as long as the unemployment rate stays above 6.5 percent and the inflation outlook remains mild.

Great rotation continues

"You're going to [continue to] get rotation out of bonds into stocks in this country," Saut told CNBC. "I don't think it's started at a great degree as of yet."

Data firm TrimTabs said U.S. equity funds saw a record inflow of $40.3 billion in July, while investors pulled $21.1 billion out of bond mutual funds and exchange-traded funds in July after record outflows of $69.1 billion in June.

Heading into the new week, the Dow Jones industrial average is on the heels of its sixth-straight weekly gain, with both the Dow and S&P 500 closing at record highs once again Friday.

Saut acknowledged that he's "targeted mid-July through mid-August as the first window of a potential vulnerability in the equity markets and the first meaningful decline of the year."

"So far, that call has been wrong-footed," he admitted. "We'll have to see in the next two weeks if it plays out that way."

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