Published
20th December 2021
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The Cambridge Weekly
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The Cambridge Weekly – 20 December 2021
Christmas tidings of comfort, if not joy
Dear readers, this week’s edition will be the final one for 2021 and we look forward to welcoming you back when we next publish on 10 January 2022. Looking back, the year has exceeded some expectations and underdelivered on others. In terms of our expectations for the economic recovery and capital market performance, 2021 has been better for investors than we dared to hope and forecast at this time last year. On the other hand, we are surely not alone in having hoped the vaccination drives that began one year ago would have ensured further progress in putting the pandemic behind us than where we are now.
Fed puts faith in US economy
Kudos to the US Federal Reserve (Fed) for a seamless change of game plan. Throughout the pandemic, investors (ourselves included) held a lingering fear of ill-timed or ill-sized monetary policy tightening. Historically low interest rates and emergency support measures have helped to keep the economy above water for the last two years, making the onset of their removal a troubling thought. The inevitable finally came true last week: on Wednesday, Fed officials announced a doubling of bond-buying reductions (tapering) starting in January, and the expectation of no less than three interest rate rises to come in 2022. And yet, investors were not alarmed. Far from it, markets had a delightful afternoon – with the S&P 500 rising 1.6% and the tech-heavy Nasdaq jumping 2.2% – even if the rally subsequently fizzled out, as some short-covering price squeezes of those who had bet against the Fed, faded.
