The biggest news of the day appears to be that the Federal Reserve will begin its long-awaited tapering off of quantitative easing:
In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.
and, yes, I know that the animal whose picture is above is spelled differently.
I’m sure we’ll see speculation abound over what it all means. I suspect not much. Basically, instead of purchasing 90% of the long-term paper the Treasury is issuing, the Fed will be purchasing 80%.
I’m interested in the reactions of my commentariat on the move.