Is Fed ready to begin the great taper? Markets say yes
September 15, 2013
Latest Update: September 15, 2013 10:35 pm
Is the Federal Reserve ready to put the Great Recession behind it? Is the US economy prepared for it?
The markets think so, as the Fed's policy board prepares to meet on Tuesday and Wednesday to decide a momentous step: whether they begin cutting back its stimulus for the economy, US$85 billion a month pumped in via bond purchases to fuel the engine.
Four months after Fed Chairman Ben Bernanke (pic) first suggested that the central bank could start to taper its stimulus program, called quantitative easing (QE), sometime this year, most expectations are that the Federal Open Market Committee (FOMC) will take the step.
And with Bernanke expected to step down at the end of January, many believe he needs to set the policy path now, rather than having it delayed for months until his successor settles into the job.
The prospect of less easy money from the Fed has already taken US stocks down from their all-time highs, and sent market interest rates climbing sharply. The yield on the benchmark 10-year Treasury bond has nearly doubled in four months, from 1.6% to 3%.
The anticipation has also wreaked havoc in emerging markets.
A pullout of foreign capital, driven by falling returns, turned into a flood outward when US bond yields rose. That sent authorities in countries such as Indonesia, India and Turkey into a panic over their plummeting currencies.