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What the Fed needs to do for minimal market impact at Jackson Hole

  • The main worry for UBS chief investment strategist Mike Ryan is a disorderly shedding of assets from the Fed.
  • "The concern has always been that they'd do it in a manner that's going to be disruptive to the markets," he said in an interview on CNBC's "Squawk Box."

As the Jackson Hole Economic Policy Symposium nears, two strategists are watching the Federal Reserve's approach to balance-sheet reduction for its potential impact on the markets.

The main worry for UBS chief investment strategist Mike Ryan is a disorderly shedding of assets from the Fed.

"The concern has always been that they'd do it in a manner that's going to be disruptive to the markets," he said in an interview on CNBC's "Squawk Box" Tuesday.

Rather than an active or a purely passive approach, Ryan said he hopes the Fed will go with "a directed approach" where the central bank sheds "in equal increments every month." Ryan said that will lessen the chance for a disruptive impact on the markets.

Another place the balance-sheet reduction could be felt is long-term yield rates, according to David Lebovitz, a global market strategist at J.P. Morgan Asset Management.

While he expects Fed Chair Janet Yellen to announce this weekend that the balance sheet reduction will begin after the Federal Open Market Committee's September meeting, he said, what is less clear is what that will do to long-term rates.

"We're essentially looking at a price-insensitive buyer coming out of the market," he said. That could mean "a little bit of pressure" on long-term rates, he said.

The symposium, which begins Friday, convenes economic experts from around the globe and is hosted by the Kansas City Fed.

Both experts said the economic outlook continues to be positive for the United States, particularly in equities, where earnings have been strong.

Strong communication and "a well-telegraphed next 12 months of Federal Reserve action" will help keep that the case, Lebovitz said.

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