After Wall Street waited for news on the Fed’s tapering decision — whether or not the Fed would wind down or “taper” its quantitative easing — news finally came down: The central bank punted. The Fed will continue to add government money into the still struggling US economy via bonds.
The reaction on in the markets was captured on the CNBC home page: “Fed postpones taper; S&P hits all-time high; Dow up 65; US 10-year yield down 11bps at 2.74.”
Why did the Fed punt? A sample from their afternoon statement makes the case:
The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.
To say that economic observers were caught off-guard is an understatement. As CNBC writes,
“Economists expected the Fed to reduce by about $15 billion a month, according to a recent CNBC poll.” The cable news network wrote that Bank of America Merrill Lynch was “an outlier,” when it forecast that the central bank may “wait until later in the year before reducing its purchases, a process the market has come to call “tapering.””
As one economic reporter tweeted: “Here’s why Fed still supports taper: the economy is not in good shape, no matter what the President says.”
Stay tuned for more reactions and analysis.
