Market Overview

Barclays Capital's Barry Knapp Sees Tapering Happening Soon

Barry Knapp, managing director at Barclays (NYSE: BCS) Capital, believes that the Federal Reserve will be cutting back their accommodative bond-buying (tapering) even though August's jobs report was on the lower side.

He talked about this view on CNBC's Squawk Box Monday morning.

"I think the Fed has pretty much convinced themselves at this point asset purchases aren't doing very much anyway, and we have made fairly substantial progress in the recovery in the labor market. The four-week moving average of jobless claims doesn't lie. It's at lower levels than it was in early '94 or 2004 when the Fed started the exit strategy process, so it may affect the mix a little bit," said Knapp.

"This is something we think that could be a bit of a positive surprise for the markets if they decide to only taper treasuries and leave the mortgage purchases intact. 'Could be a small boost on the housing related equity part of the equity market and mortgage market. "

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According to Knapp, we've had an impairment in the mortgage credit channel for quite some time. no credit is getting to first-time home buyers, however, by next Spring, we could have looser mortgage credit. That's an argument for the Fed continuing to buy mortgages, providing some additional support until then. He cited academic work, some of which was done at Jackson Hole, on how mortgage purchases have had more of a macro economic effect then treasury purchases did.

"The way that our chief economist has lined up the tapering process is, he assumes that they'll take the steps at the meetings with press conferences. So September, December, and into next March, we think they'll actually be done in next March as opposed to some of the Fed speak [that] has indicated they could go until mid year next year," said Knapp.

"But, again, you know, I think how they unwind, this is going to be critical."

At the time of this writing, Jason Cunningham had no position with the mentioned entities. Visit Jason on Twitter @JasonCunningham.

Posted-In: CNBC News Bonds Politics Econ #s Economics Federal Reserve Hot Best of Benzinga

 

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