The January 29 FOMC meeting was the last meeting to be under Fed Chairman Ben Bernanke. Janet Yellen will be the new Federal Reserve Chairman going forward. The markets had been anticipating another tapering announcement, even after the first $10 billion tapering announcement was made in December.
The verdict is out, and another round of bond tapering will be coming. Janet Yellen’s new monthly purchases will drop to $65 billion from $75 billion, after having been $85 billion previously. The big news is that the Federal Reserve is also likely to continue reducing bond purchases in measured steps now that the economy has picked up.
The FOMC noted that labor market conditions are mixed but are showing improvements; household spending and business investment have advanced more quickly. Bernanke and Yellen also are telegraphing that the US economy is expected to keep expanding at a moderate pace and that unemployment will decline gradually.
Janet Yellen and team will be spending $30 billion per month to purchase mortgage-backed securities and another $35 billion per month to purchase Treasury securities. Both are down by $5 billion. It is also interesting to see that the vote this time for a tapering was unanimous, a vote pattern that we have not seen for three and a half years.
Emerging markets may have hoped for tapering to be slower, but the Fed is signaling that it wants to return to more of a normalized policy environment. Maybe the FOMC is just not too worried about the rest of the world – or maybe they have their own issues to worry about. One thing that was noticed was that much of the statement was nearly identical in outlook and in tone.
Wednesday’s news is not having any major impact on the financial markets. The S&P 500 is now lower at -16 at 1,776 and the DJIA is down 153 points at 15,775. The fulll FOMC statement is here.
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