Fed could taper another $10bn this week

by Ryan Smith28 Jan 2014

The Federal Reserve will probably cut its bond purchases by another $10bn this week, analysts believe.

The Fed’s rule-making committee starts a two-day meeting Tuesday, and most analysts believe the agency will decide to continue to taper its quantitative easing program, according to MarketWatch. The Fed began the taper last month, reducing by $10bn its monthly purchase of Treasury bonds and mortgage-backed securities.

The Fed is expected to keep that pace with another $10bn reduction this week, according to MarketWatch. Although the stock market took a tumble last week, most analysts don’t think the impact was big enough to slow down the taper.
Fed Chairman Ben Bernanke said in December that the taper would most likely proceed by “moderate steps” unless a major economic shakeup occurred.

“The process will be deliberate and data-dependent,” he said. “…If the economy slows for some reason or we’re disappointed in the outcomes, we could skip a meeting or two. On the other hand, if things really pick up we could go faster. That said, my expectation is moderate steps going forward.”

The QE program led to historic low rates and an explosion in the refinance market in 2012 and 2013. Mere speculation that the Fed would taper in September led rates to rise by more than a full percentage point over the summer, choking the refi boom and leading to thousands of layoffs in the mortgage units of big banks. December’s taper decision saw rates tick upward, but they’ve drifted down again, reaching pre-taper levels earlier this month.

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