Following the September meeting of the Federal Open Market Committee (FOMC), the Federal Reserve announced that it will not reduce its $85 billion-per-month asset purchase program. Quantitative easing, now in its third iteration since the start of the Great Recession, will continue flowing into the U.S. financial system as FOMC members fail to agree on a different course of action. Chairman Ben Bernanke, who hinted at so-called tapering last spring, commented during a press conference that there is too much systemic weakness in the economy to justify a withdrawal, and that signs of economic growth need to be analyzed and discussed further before more substantive action is taken.
"Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the Committee wrote in statement.
Many economists and financial industry experts had all but assumed a reduction in QE3 of about $10-15 billion, based on improving employment figures and rising consumer sentiment. A commitment to more cheap credit led to a market burst, with the Dow Jones Industrial Average surging by almost a percentage point and the S&P 500 climbing by nearly 20 points in the hour and a half since the announcement.
Will the no-taper bounce last? As long as the significant economic statistics such as employment, inflation and consumer sentiment stay on track, tapering could eventually begin. A big litmus test will be this holiday season, although last year's performance suggested that doom-and-gloom fears about empty malls may not be justified. Such speculation, however, is a few months too early.
In the meantime, investors should consider utilizing SmartStops to help them stay informed about developments in the market and set automated safeguards in case of future volatility. Investigate our website further to learn more about what we do and how our portfolio management tools can help you invest and perform better.
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