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When will the Fed Taper?

The timing of the Fed’s Taper has been a recurring theme, that has been a key driver of price action. In January the current Federal Reserve Chairman Ben Bernanke, and will most likely be succeeded by Janet Yellen.  Analysts and traders have been attempting to predict the Federal Reserve’s taper timing, however the messages from the committee has been difficult to disseminate. Each of the Fed members (voting and non-voting) speeches and interviews have been picked through for any hint of a timeframe.

Earlier in the year when traders thought the Fed would begin to taper their monthly bond purchases (currently $85-billion), equity markets and precious metals were hit hardest. Gold which is seen as a hedge against inflation, tumbled as traders speculated that tapering the cheap money would see a rotation from gold into other asset classes.

As the US data improves, especially the improving employment figures (November NFP: +203K) it is a waiting game on when the central bank will believe the time has come to reduce the stimulus. 

The Wall Street Journal ran an article on Monday covering the Fed’s Richard Fishers comments that the “Time to Taper Fed’s Bond buys is now”.

January Taper

Some of the big names on Wall Street believe that Bernanke will begin the tapering process in January, however it will only be a small amount. This would make the transition easier for the next Fed Chairman (most likely Janet Yellen), as they would be able to reduce the monthly bond purchases at a pace and time frame that they feel is appropriate. 

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