Thursday, December 19, 2013

The Taper Arrives

The much anticipated taper from the Federal Reserve was finally announced yesterday, when outgoing Fed chair Ben Bernanke said he would cut back the monthly asset purchase program from $85 billion per month to $75 billion. The reduced amount will start in January.
Whether because the taper was so modest, or because it has been long expected by Wall Street anyway, the market surged on the news. Both the Dow Jones industrial average and the S&P 500 marked their best single-day gains since October 10, and both finished at all-time highs.
Bernanke also reiterated his belief that inflation was running lower than he’d like, below his target of 2.0 percent. For that and other reasons, the Fed is likely to keep interest rates near zero for some time to come – at least until unemployment, now running at 7.0 percent drops to 6.5 percent. Added together, it looks like the taper, for the moment at least, will be fairly uneventful.

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