NEW YORK (Reuters) - David Tepper, head of $19 billion hedge fund Appaloosa Management, said Tuesday that the Federal Reserve is not likely to cut its bond-buying in the near-term.
“They’re not tapering for a long time now ... they really have no choice,” Tepper said on cable television network CNBC, in reference to the Fed’s $85 billion in monthly bond-buying.
Tepper said that the Fed cannot reduce the pace of its bond-buying given current issues in Washington. Tuesday marked day 15 of the U.S. government shutdown, and Congress must raise the $16.7 trillion U.S. debt ceiling soon to avoid a potential default.
In reference to the timing of a pullback in the Fed’s bond-buying, Tepper said: “When are you going to have the momentum in the economy to start it, and it certainly is not now ... and it’s probably not going to be for the next 3 or 4 months because you have this overhang again.”
The Fed has held its overnight funds rate between zero and 0.25 percent since December 2008 and, at its September meeting, decided to maintain the pace of its bond-buying and await evidence of stronger economic growth.
Tepper said, however, that “we really won’t default on the 17th,” which is the date at which U.S. Treasury Secretary Jack Lew has said the United States will exhaust its $16.7 trillion borrowing authority.
One of Tepper’s main funds, the Palomino fund, was up 20.35 percent through August 31, according to data from HSBC Private Bank.
Tepper said that if Congress can resolve the U.S. fiscal situation, the stock market will go higher. Stock prices could rise to be valued at 18-20 times earnings, he said.
Tepper also said that inflation is nowhere on the horizon.
The Fed reiterated on September 18 that it would not start to raise interest rates at least until unemployment falls to 6.5 percent, as long as inflation does not threaten to go above 2.5 percent. The U.S. jobless rate in August was 7.3 percent.
Reporting by Sam Forgione; Editing by Krista Hughes