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MARKETS FALL ON FEARS OF ‘THE TAPER’

MARKETS FALL ON FEARS OF 'THE TAPER': Here's What You Need To Know

Courtesy of Sam Ro at Business Insidergrim reaper taper

The Dow Jones industrial Average was up a whopping 155 points this morning. However, markets got spooked by new talks of "the taper," which may be coming sooner than expected.  So, what's the taper?

First the scoreboard:

Dow: 15,307, -80.4 pts, -0.5%
S&P 500: 1,655, -13.8 pts, -0.8%
NASDAQ: 3,463, -38.8 pts, -1.1%

And now the top stories:

  • In recent weeks, there has been chatter about a tapering of the Federal Reserve's quantitative easing program.  Specifically, the Fed has been buying $85 billion worth of bonds each month in its effort to lower interest rates, stimulate lending activity, and boost the economy.  Many have argue that this has also caused bond investors to flee the bond market and head to the stock market.  With the economy showing signs of improvement, people think that it has become increasingly likely that the Fed will slow down its easy monetary policy.
  • At 10:00 AM ET, Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee of Congress.  He tried to make the point that premature tightening (or tapering) would risk slowing or even ending the economic recovery.
  • But during the Q&A, Bernanke said that the Fed could taper bond purchases in the next few meetings if the economic data supported it.  This may seem like an obvious statement.  But it spooked the markets, and it marked the highs of the day.
  • At 2:00 PM ET, the Fed released the minutes from its recent Federal Open Market Committee (FOMC) meeting. Like Bernanke said during his testimony, the Fed reiterated that more progress would be needed before it would slow quantitative easing.  However, some FOMC members expressed a willingness to begin tapering as early as June.
  • "FOMC minutes show a willingness to taper asset purchases this year," tweeted Deutsche Bank's Joe LaVorgna. "We expect the taper will begin in either late Q3 or early Q4."

[Photo credit: flickr/Steve Bowbrick]


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