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A Tiny Taper Is Here

John Blank

Well gang, we got the taper -- $10 billion to be exact.  

Global and U.S. stock markets actually rose on the news. That means good news was good news for a change.  Markets correctly read this decision, and the Fed correctly telegraphed its intentions, it appears.  

For once, building strength evident in the GDP growth rate and the strong labor market data were two keys in the decision.  The final key was last week's two-year budget deal.
I expect last week's budget deal was put in place purposely before this Fed meeting. This is a strategy we see, not a scramble.  And that is even more good news.

Do we actually have a U.S. plan here?

Having said that, the announcement made clear that the Taper is NOT a Pre-set Course. What that means is if the labor markets head south in the USA, the Fed's Open Market Committee will up the bond-buying once again.

I think, overall, this FOMC statement implies that we hit $50 billion ($25 billion and $25 billion) by the end of February.  And the USA is most likely down with the flow rate of bond buying as stimulus by Spring...or Summer at the latest.

Here is the key piece of the Dec. 18th FOMC statement -

"Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy.

In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases.

Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month."

Eric Rosengren was the sole dissenter.

My RTI question:  Do YOU like the Fed's $10 billion Taper Call?

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