The Federal Open Mark Committee (FOMC) left the potential for tapering to begin in December, stating “warrant trimming the pace of purchases in coming months.” The FOMC is walking a tight rope, as it attempts to soften the market impact of reducing its current level of quantitative easing. The Fed is attempting to signal to the market a vague timetable of tightening, without shocking investors. It is a difficult task, if they are too vague, then markets are left unsure, if the expectations are too rigid, they are left without flexibility to react to the economic data.
The US economic growth is beginning to gain traction, with improving unemployment figures, the concern is that tapering will undermine this progress, though if the Fed waits to long, the markets become reliant on the stimulus.
In the summer when Fed Chairman Ben Bernanke signalled the likelihood of tightening, precious metals and equities fell significantly. Following last night’s release Gold moved lower and equity markets in Asia fell, following the move at the end of the US session.