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Three reasons not to fear the taper

Talking Numbers

Linette Lopez, Financial Editor at Business Insider, gives three reasons investors shouldn’t panic about the Fed tapering.

Should you fear the taper? One Fed-watcher says you can stay calm and carry on.

In case you haven’t heard, the markets expect the Federal Reserve Bank will begin tapering its $85 billion per month bond-buying program as early as this month. Known as “quantitative easing” (“QE”), this policy has the Fed purchasing US Treasury and mortgage bonds from financial institutions, thereby adding money into the system.

(Read: Retail investors shrug off fears of Syria, Fed taper)

By driving up bond prices, quantitative easing also lowers interest rates because bond yields move inversely to bond prices. From October 2008 until May of this year, yields on the benchmark US Treasury 10-Year Note went from around 4% to 1.64%. To be sure, though, it wasn’t a smooth ride down but it was a significant drop.

But since May 22, interest rates have bounced back up. That’s because on that date, Fed Chairman Ben Bernanke hinted it would begin tapering QE. Since then, 10-Year yields have nearly doubled to close to 3%.

(Read: Mortgage apps plunge, refinancing hits 4 year low as rats soar)

Linette Lopez is Financial Editor at the widely-read and well-regarded Business Insider. According to Lopez, some are worried too much. She gives three reasons investors shouldn’t panic about the Fed tapering.

To hear the three reasons why Lopez believes investors shouldn’t worry about tapering, watch the video above.

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