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Fed nontaper is 'insurance' for upcoming uncertainty

The Federal Reserve's decision not to start tapering its bond-buying has provided investors a "pretty decent measure of insurance" during uncertain budget times in Washington, JPMorgan's chief U.S. equity strategist told CNBC on Monday.

Partisan wrangling between the White House and Republican leaders on Capitol Hill are raising concerns about the prospects of a government funding shutdown next month for the first time since the end of 1995, beginning of 1996. At the same time, the standoff continues over what, if any, conditions should be linked to increasing the debt ceiling before the mid-October deadline.

(Read more: Fed speak, DC dramacould rattle the market)

JPM's Thomas Lee said on CNBC's "Squawk Box" that the Fed probably reached its decision last week because it "saw some risks."

"We are going through a period where there's potential budget debates, maybe a short shutdown," he said. "Investors are going to be nervous. I think the Fed provided us a pretty decent measure of insurance during that period."

Since the Fed decided not to start its scale back its $85-billion-a-month bond-buying program at its September meeting, Wall Street will be looking for clues from four Fed presidents speaking Monday on whether the central bank will taper next month.

Longer term, Lee said he's encouraged looking into next year. "In the U.S., we still have pretty decent momentum for not only housing and autos but increasingly there's an argument that corporate cap ex [capital expenditures] is going to start moving up. There should be a good new story in the economy next year, as long as we don't have negative shocks."

Lee said he's maintaining his year-end target of 1,775 on the S&P 500 Index, which would represent about a 4 percent increase from Friday's close. "That's a 20 percent annualized return over the next quarter. So it's going to really outperform a lot of asset classes."

"Next year, there's a good argument for earnings to be actually revised higher," he predicted.

Lee had upped his official year-end price target for the S&P on July 26 to 1,775. That's about 12 percent higher than his 1,580 number, which he increased to 1,715 on May 17.

By CNBC's Matthew J. Belvedere. Follow him on Twitter @Matt_SquawkCNBC.

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