Home > Economics, Finance > The Federal Reserve Decides Not to Taper (Yet)

The Federal Reserve Decides Not to Taper (Yet)

Wednesday, September 18th, 2013 Leave a comment Go to comments

Catching financial markets by surprise, the S&P 500 and the Dow hit fresh all-time highs after the Federal Reserve said it will continue its market-friendly bond-buying program.

USA Today writes:

In a statement following a two-day policy meeting, the Fed said it would continue to buy $85 billion per-month in long-term U.S. Treasuries and mortgage-backed bonds to “help make broader financial conditions more accommodative” to promote a stronger economic recovery. The market was expecting the Fed to start reducing its asset purchases by roughly $10 billion to $15 billion per month.

The move by the Fed caught Wall Street off guard, says Erik Davidson, deputy chief investment officer at Wells Fargo Private Bank. “No taper was not priced in,” says Davidson. “The market got a head fake.” The thought of a longer period of “free money” resulted in the bullish market reaction, he adds.

In addition to the Fed’s shocking decision not to taper, the Fed also downgraded its forecasts for the U.S. economy. Reuters notes that “the Fed sees growth in a 2 to 2.3 percent range this year, down from 2.3 to 2.6 percent in its June estimates. The downgrade for next year was even sharper: 2.9-3.1 percent from 3.0-3.5 percent.”

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