Taper has Positive Market Impact

by Jay Pestrichelli on December 18th, 2013

In a move that most Wall Street traders didn’t see coming (including myself), the Fed decided to start the tapering of QE by $10 billion in January.  This reduced the monthly purchases from $85 billion per month to $75 billion per month.
This afternoon the FOMC stated interest rates will remain unchanged at 0-0.25% but decided to begin the feared taper by cutting mortgage-backed securities and treasury purchases by $5 billion each. Going into the announcement only 20% of bankers thought the taper would start this month according to this CNBC poll.
The taper is being interpreted as good news for 2014. There were also some dovish comments about tightening interest rates (not tapering) leading the market to believe that low rates will remain policy longer than previously expected. This news came in the form of keeping rates unchanged “well past” the 6.5% unemployment trigger they previously mentioned. They are also projecting a GDP to rise to nearly 3% for 2014 and 2015.
After posting yesterday that we thought the likelihood of a taper was off the table, I stand corrected but am pleasantly surprised of how the market reacted.  I guess 2 wrongs can make a right.  However, it really has to be the bullish comments about forward. 

This market reaction can only be interpreted as positive as the DOW shot up over 200 points within 1 hour of the release. Time will tell if this outlook keeps the bull running.

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