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Current Views

December 19, 2013: Our Thoughts on Tapering

Thoughts from our Domestic Equity Team

After months of speculation, the Fed announced that it will finally begin to taper its asset purchases beginning in January. Our take is that despite this reduction in QE, the overall message was still decidedly dovish. The magnitude of the cutback is quite modest at $10 billion monthly, and most would consider the new pace of $75 billion per month in mortgage and Treasury bond purchases as still highly accommodative. The Fed also noted its willingness to delay any future reductions should inflation persist at very low levels. Furthermore, new language was added to the Federal Open Market Committee’s statement suggesting that short term interest rates will likely remain at near-zero levels well beyond the time that the unemployment rate falls below 6.5%. In our opinion, the Fed would not have started the tapering process unless it believed that the economy was showing signs of sustainable improvement. We therefore do not see this change in policy as posing a great threat to the market. On the contrary, we believe that the assurance of low rates for an extended period combined with an improving economy and low levels of inflation should make for a healthy stock market environment.

Submitted by: Jason Sheer, CFA

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