US Federal Reserve Announces $10 Billion Taper

Ever since it was announced in May by Fed chairman Ben Bernanke everyone knew the taper was coming. The main issue was that there was no schedule along with the announcement. Now at what could have been the final FOMC led by Bernanke a $10 billion taper. There will be $5 billion less in the long-term Treasury bonds budget and another $5 billion cut to the mortgage-backed securities monthly amount.

The Fed is trying to reiterate that “tapering is not tightening” as they still see rates at lower levels with only 2 members forecasting a rate hike in 2014. The majority of the Committee expects 2015 to be a more appropriate time for a rate raise.

The vote to taper was supported by 9 members out of 12. Boston Fed President dissented citing a still too high jobless rate and lower than targeted inflation. He did not approve of the taper as he thinks its premature until economic growth can be shown to be sustainable.

The EUR/USD continues to look for guidance to this market moving announcement. Earlier this week the number of analysts forecasting for a taper increased given the good data out of the US. Even a German think-tank endorsed the US recovery earlier.

The JPY will continue to be monitored as its a perfect example of two central banks moving in the opposite direction. The Federal Reserve has started to pull back the stimulus to boosts the US economy. The Bank of Japan this year was proactive in announcing more stimulus and doubling its monetary base to reach the 2 percent inflation target in two years. This draws out a Yen weakening scenario, that is very dependant in how the market has confidence on the actions of the central banks and how clear and transparent they are with their statements.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza