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Stop Trading Off Taper Talk: Macke


It may not happen today, tomorrow or even this year, but at some point the Federal Reserve is going to either reduce its quantitative easing program or stop it entirely — of this we can be sure. The question facing investors is if they should care.

"This has been the longest anticipated move up in rates in history," says Hugh Johnson, who heads the advisory service Johnson Advisors. He doesn't think the dreaded taper will happen until the fourth quarter or early next year. That's bad news for those obsessing over the eventual demise of QE but good news for the economy, given that Bernanke has vowed to keep pushing rates lower until unemployment drops below 6.5% or inflation exceeds 2%.

Tuesday's Consumer Price Index report shows inflation well under the Fed's self-imposed trigger point, but unemployment obviously remains a problem. As Johnson sees it, rates will start to climb in anticipation of the most dreaded economic upturn in history but not until the Fed ends its endlessly "accommodative" policy toward rates as a whole, as opposed to the mechanical process of QE stimulus.

The argument in favor of cutting stimulus is now familiar. Maintaining artificially low interest rates hurts savers and anyone else investing in so-called risk-free assets. It's also expensive, risky and generally horrifying to free-market devotees.

It's not entirely clear that the end of money printing in exchange for economic growth will be as bad as anticipated. Ultimately stocks are supposed to be bought and sold as a function of future earnings rather than institutional money flows in and out bonds. If — and it's a huge if — the Fed is able to gracefully cut down stimulus in sync with an increase in overall earnings, equities will be a better investment than bonds regardless of what the Fed is doing.

The reality is that no one knows what's going to happen when the Fed steps out of the market manipulation game. For most investors, the best move is to do nothing. Over time, trading too much is a bigger risk to your financial well-being than anything the FOMC does.

***Programming Note: TODAY be sure to catch our live multi-media coverage of the Federal Reserve's most highly anticipated policy meeting this year, right here on Breakout!

2:30pm: Analysis begins with a live stream Fed chief Ben Bernanke's press conference, with live blogging from Yahoo! Finance's team of Jeff Macke, Matt Nesto, Aaron Task, Michael Santoli, Lauren Lyster, Rick Newman and more.

3:15pm: The show goes on-air live with full analysis of the FOMC statement, Bernanke presser, and all of the day's market action. Special guests include Peter Schiff of Euro Pacific Capital, James Paulsen of Wells Capital Management, and Jeff Kilburg of KKM Financial.

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