Last week the FED announced that they would begin to ramp down their bond purchases. Instead of purchasing $85 Billion in Treasury bonds they will now be purchasing just $75 Billion.
What this means is the FED is finally feeling confident enough to let the economy begin to stand on it’s own feet. As the FED meetings have become more popular than the stock market gains themselves, this change was inevitable. We thought it might happen sooner and with the recent events; job unemployment fell to 7% from 7.3%, congress was able to pass a bipartisan budget agreement to fund the government through the next two fiscal years, housing has been constantly building momentum, it appeared to the FED a good time to begin to Taper. Today’s number only solidified this when GDP third quarter number was revised up to 4.1%.
As a result of the taper the market has since soared to new highs. The new highs may have seemed opposite of what should have happened, due to the inevitability of the taper, the markets seemed to already have the announcement priced in.
Overall it seems to be the right decision from the FED, a decision that could have come earlier in my opinion. The FED hasn’t completely given up control, as the interest rate remains unchanged, the FED still has the ability to help aid the economy if something drastic were to occur. For now though, they are content while they watch for continued improvement in the economy. It is clear the economy has been improving and again it becomes inevitable until the FED begin to taper further ultimately raising interest rates.