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The Fed Throws Out a “Taper” Feeler….

Interesting (and surprising – at least to me) move by the Fed here.  They announced a $10B tapering set to come in January.  This looks like a “feeler” to me.  For all practical purposes, a $10B reduction in purchases is marginal, if not meaningless.  They are still buying $75B a month with a specific flexible policy outlook going forward:

“asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.”

I don’t have many thoughts on this because I don’t think it’s a significant change (although it does surprise me).  This looks to me like more of a feeler where they’re testing the market’s response so they can enter the new year with a flexible policy outlook.  This way, if the market panics they can respond by reaffirming QE.  Or, if the market digests it in a sane manner (as I suspect) then they can enter the new year with a flexible policy view.  All in all, $75B is still “money printing” as opposed to “unprinting” so I don’t see this as making a big shift in policy.  And this goes to show that the “tapering” is likely to be a long process as opposed to an event.  That’s all a good thing as far as I see it.

Keep on truckin’.

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