No More Fed Easing Unless Stocks Drop More: Tepper

Noted hedge fund manager David Tepper doubts the Federal Reserve will continue its intervention in the markets unless things get considerably worse.

David Tepper
David Tepper

The head of Appaloosa Management and source of the "Tepper Rally" that generated a huge run in the market last September said in an email to CNBC that stocks would have to fall considerably more before the Fed would start another round of quantitative easing, or QE.

"If (the S&P 500 falls) a couple hundred points and financial conditions tightened maybe they would reconsider," Tepper wrote. "But there is no logic to QE3 now and the only result might be more food and energy inflation."

Tepper made his influential call in a September CNBC appearancein which he said stocks were in a win-win situation: Either the economy would improve and drive a rally, or the economy would drop and the Fed would undertake another round of easing.

Two months later, the central bank announced the second round of its large asset purchases—known as QE2 in market jargon—that helped spark a 27 percent surge in the S&P which finally started to sputter in early May.

The market has been rife with speculationsince a 6 percent drop in stocks on whether the Fed, faced with persistently high unemployment and a double-dip in housing prices, would step in with more easing.

But Tepper told CNBC that the fall in stocks since the May 2 post-financial crisis high was "not enough of a drop" to bring the central bank in off the sidelines. QE2 is set to expire at the end of June with the last of $600 billion in Treasurys purchases.

He also said that further easing might only spur more energy and food inflation, meaning the Fed has to "let it ride" for now.

As such, he expects tough sledding for stocks ahead.

"We (are) in a difficult investment environment," he wrote. "Short and Sweet."