To Taper Or Not To Taper

Tapering Photo…that is the question.

A bit over a month ago, I wrote an article explaining what tapering was and why it was a good thing. Today, the Federal Open Market Committee (FOMC) began a meeting which will conclude tomorrow, Wednesday the 18th at 12:30pm. At 2:30pm Ben Bernanke will get in front of the camera to explain their plan for the next month to the world and investors (because they’re out of this world). In brief, tapering is the gradual reduction of the $85 billion worth of Treasury and mortgage bonds. If you want to know how the purchase of the bonds effects the economy, read this article on “How A Bond Works.”

On June 19th, Federal Reserve Chairman Ben Bernanke made a statement regarding U.S. monetary policy and basically stated that the Fed plans on starting to taper later on this year (depending on the economic climate). The financial markets were shocked and felt that this was unexpected, so stock prices trembled and panic arose amongst investors, then the stock markets fell HARD (the S&P 500 dropped about 4.7%). Today, it is a different story. Everyone is ready, the financial markets have already priced in tapering and the only thing we can do… is… wait.Catch_A_Cold

I will not speculate based on my own personal feelings or thoughts about tapering, however here are the facts of what’s currently going on in the U.S. Economy:

  1. We have the Housing Market which has been slowly recovering the losses from the 2007-2009 recession however last month the Pending Home Sales Index decreased by 1.3%.
  2. According to the Labor Department the non-farm unemployment rate has decreased from 7.4% to 7.3% where it added 169,000 jobs in August 2013. This is the lowest since December 2008. The drop in the unemployment rate is because 312,000 Americans stopped working or looking for work and they don’t get counted.
  3. Sequestration. How would you feel if your boss informed you of a 20% pay cut? I don’t need to say much more about this except that I HIGHLY recommend reading this article on “How The Sequester Effects You.”
  4. The consumer-price index increased 0.1 percent, the least in three months. This is less than the forecast.
  5. Syria.

As I said above, the financial markets have priced in tapering however there has been so much bad news lately that the FOMC might take into consideration the month of August as being a great time for Americans to sit back and relax. Instead of going out there looking for jobs or buying a home etc. Obviously I’m just assuming here.

Overall, the Federal will announce tomorrow on whether they will taper or not. If they decide to taper, it is a great sign for the economy. If they don’t decide to taper: oh well, more artificial money will be pumped into the economy just like it’s been happening every other month.

<<<If you have any thoughts on the Federal Open Market Committee’s decision, post it as a comment. I’m very interested on your reasoning also.>>



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