BREAKING NEWS FROM THE FED

Or, it was yesterday when they posted their press release…the big news is that Fed has decided not to taper their $85 Billion in monthly asset purchases known as Quantitative Easing. This was a pretty big surprise, as most of the market had priced in a September start to QE tapering, with most of the estimates seeming to converge around a $10B/reduction in the pace of purchases.

Clearly, the markets were expecting a more hawkish press release and press conference than they received, and Chairman Bernanke seemed to enjoy himself during the press conference as the Fed sent the clear signal that there was no predetermined path for tapering and that the Fed’s tapering would be highly data dependent.

Of course, the major reason the Fed decided not to taper was because of the tightening that has occurred in financial markets over the past several months–tightening that was caused by the premature discussion of tapering asset purchases at the last FOMC meeting. So, while it is certainly a good thing that the Fed decided not to pursue tapering, the real question that needs to be asked is why did Bernanke even bring up tapering at the last FOMC meeting, and how much damage did the 100+ basis point rise in interest rates over the last three months negatively impact economic growth?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s