Previously on
MoreLiver’s:
Redacted Version of
the December 2013 FOMC Statement – Aleph
blog
Fed cuts bond buying
in first step away from historic stimulus – Reuters
The Fed on Wednesday embarked on the risky task of winding down the era
of easy money, saying the U.S. economy was finally
strong enough for it to start scaling down its massive bond-buying stimulus.
Fed Trims QE Pace to $75 Billion on Labor Market Outlook – BB
Fed Officials Lower Projection for Unemployment Rate in 2014 – BB
Yellen’s Yellow
Light: The Fed Tiptoes Into a Taper – BB
Also check the very good links at the bottom of the post.
The Top 10 Highlights
Of "Proud" Bernanke Press Conference – ZH
Goldman FOMC
Post-Mortem: "Slightly More Hawkish Then Expectations" – ZH
Fed to slow buying to
$75bn from January – FT
The Fed took its first step away from a historic era of monetary
stimulus by deciding to taper its monthly asset buying from $85bn to $75bn. The
decision marks the moment when the Fed’s unprecedented bond-buying finally
passed its peak almost five years after a financial crisis that shook the
foundations of the global economy.
Fed Projections See
No Rate Increase Until 2015 – WSJ
Slightly more Federal
Reserve officials see the central bank waiting longer to start raising
short-term rates.
Bernanke splits the
difference – alphaville
/ FT
Today’s market reaction was positive, a (very early) sign that in this
narrow sense, he might well have succeeded. Bernanke has shrunk the signaling
channel through which QE works, while simultaneously he has widened that of the
Fed’s guidance on short rates.
Lone Dissenter
Transforms to Dove From Hawk – WSJ
At the final Fed
meeting of 2013, the central bank’s decision to begin cutting back its
bond-buying program brought a persistent hawk in from the cold, and drove one
of its most consistent supporters of aggressive action into formal opposition.
Bernanke to Congress:
Thanks for Not Wrecking the Economy (Any Further) – WSJ
The budget deal
reached this month in Congress seemed to be a comforting factor in allowing the
Fed to reduce the size of its bond-purchase program.
The Fed’s Shifting
Unemployment Guideposts – WSJ
The Fed attempted to
bolster assurances that it will keep short-term interest rates low for a long
time, by further distancing itself from the unemployment markers it had
previously set for its policies. Here’s how the Fed’s thinking on unemployment
guideposts has evolved.
The Market Developed
a Taste for the Taper – WSJ
The markets are taking the Fed’s “big” policy shift in stride; more than
in stride, they are rising sharply.
Fed’s ‘Very Dovish
Tapering’ Spurs Rally – WSJ
Wall Street is giving the Federal Reserve wide praise for how it plans
to dial back its massive bond-buying program.
Emerging-Market
Currencies Finally Respond to Reason for Taper – WSJ
If the Fed stays cautious and makes sure that its stimulus pullback
doesn’t threaten the pace of the U.S. recovery, many
emerging markets should benefit, investors and analysts say.
The Taper: Analysts
React
– WSJ
As opposed to this summer’s “taper tantrum,” however, the market is
rallying sharply now that the tapering is here. How’s that? To explain, we
present a sampling of reactions from the Street:
Gentle Fed Taper
Leaves Big Question Mark for U.S. Dollar – WSJ
The Fed statement poses a dilemma for currency traders. Many investors
had expected the dollar to rally massively next year as the central bank begins
to unwind stimulus and the U.S. economy starts to
outperform its peers. But now that the Fed is sending strong indications that
it will not be hiking interest rates any time soon, that could slow the
dollar’s rise.
After Its Mid-Year
Communications Problems, Fed Gets Message Right – WSJ
The FOMC said it could keep rates unchanged near zero even after the
unemployment rate–now at 7.0%–had fallen “way past” the 6.5% level. It also
indicated it would be more comfortable with a pickup in inflation expectations.
This was the final confirmation that “tapering is not tightening” that the
market needed, and it sealed the Fed’s success in getting on top of its
communications strategy.
Bernanke Goes Out
Like a Wrecking Ball – The
Reformed Broker
The return to normalization continues. Full economic recovery is not a
slam dunk nor is it a fait accompli (the Fed can’t control fiscal policy, after
all). The full exit from QE / ZIRP could take years. But let’s at least
acknowledge that this is an important step in the right direction.
The Beginning of the
End for Quantitative Easing – Tim
Duy’s Fed Watch
Another historic moment for a Federal Reserve that has had its share of
historic moments in the past several years.
Most likely, we can now move past the issue of tapering and asset
purchases. Barring a dramatic change in
the data, I doubt the Fed will reverse course.
The issue now is to what extent incoming data impact our expectations of
the first rate hike.
The Fed is cutting
back on its money printing -- and Wall Street is thrilled – WaPo
This is a victory for Fed communications. It has taken six concerted
months of effort, but the central bank has finally persuaded markets that
tapering doesn't mean tightening. There may be a second dimension in play, as
well, though this one is harder to prove. After months of hype and speculation
around the Fed's tapering plans, investors may just like the fact that they've
gotten going with it already.
Impact of Fed
‘tapering talk’ on emerging markets – voxeu.org
Having criticised the Federal Reserve’s quantitative easing as a
‘currency war’, some policymakers complained when talk of ‘tapering’ the policy
worsened emerging market financial conditions. Countries that had previously
allowed the largest real exchange rate appreciations and current account
deficit increases experienced the sharpest reversals. This suggests the
importance of macroprudential policies to limit the impact of foreign capital
inflows. Better fundamentals did not provide better insulation from ‘tapering
talk’, nor did capital controls. Countries with larger and more liquid
financial markets were more severely affected.
Guggenheim’s Minerd:
There’s Still at Least $600 Billion in QE3 to Come – WSJ
QE, finitely – The Economist
Mr Bernanke said the
programme was “well on its way to meeting our economic
objectives” of putting the economic recovery on a path to sustained
improvement. Whether that’s true won’t be known until well after he leaves
office on January 31st, but for now the market seems to agree.
What Happened The
Last Time A Major Central Bank "Tapered" QE? – ZH
Bank of Japan did QE from 2011 to 2006, when it started tapering. The
market rejoiced at the normalization for a week or 2...before dropping 24% in
the following 2 months (and 75% in 2 years)
UPDATE 1
Farewell QE, you have
been a magnificent success – The
Telegraph
The moral contours of QE depend on your angle of vision. But would you
rather be surrounded by mass unemployment?
Fed begins tapering,
Bernanke ending what he started – TradingFloor
At his final FOMC
meeting, Ben Bernanke delivered on his promise to begin tapering the central
bank's monthly purchases. The nature of further tapering in 2014, feedback
effects and the response of other central banks are open questions.
Authorities have taken
advantage of the long run-up to Wednesday’s tapering decision to prepare their
economies and markets.
What They Said: Asian
Reactions to Fed Tapering – WSJ
Talk of tapering last
May took Asian authorities by surprise, but this time around they're far better
prepared. Here's a selection of comments from Asian policy makers and analysts
on the Fed's decision to reduce its bond buying by $10 billion a month.
The Taper In
Perspective (And What We Learned Today) – ZH
http://www.zerohedge.com/news/2013-12-18/chart-day-taper-perspective-and-what-we-learned-today
US: a dovish taper – Nordea
We are not surprised by the decision, and markets also appear to be
taking the announcement in stride. As the US economy finally
shifts to above-trend growth in 2014 and tapering of the Fed’s asset purchases
gets more underway, we believe markets are likely to start questioning the
Fed’s commitment to keep rates low for a prolonged period, setting the stage
for modestly higher US rates and a stronger
USD vs EUR.
The Fed starts
tapering and strengthens forward guidance – Danske
Bank
In line with our expectations the Fed started to taper asset purchases
by USD10bn split equally between treasuries and mortgage bonds.
Fed tapers, markets
react modestly – Handelsbanken
Tapering decision
accompanied by a change in forward guidance * Fed says it will reduce the pace
of asset purchases in further measured steps at future meetings * Our view: Fed
will wind down asset purchases much faster than Ben Bernanke implied
Morning Bond Update: Fed tapers, market sails
on largely unfazed – TradingFloor
The US Fed finally
gave tapering the go-ahead yesterday although it will be with a relatively
light touch starting from January. Market reaction was calm given that
expectations were priced in and if anything, surprised to the upside.
FI Eye-Opener:
Tapering is here - so what? – Nordea
Fed’s message leads bond yields only slightly higher. Yields to correct
lower before the end of the year. US equities reach new closing highs. Spanish
bonds still under pressure. Fed starts a long tapering process.
The Bernanke Doctrine – BB
Chairman Ben S. Bernanke said one of the central bank’s greatest
strengths is its willingness, “during its finest hours,” to stand up to
political pressure and make tough decisions.
The Taper Morning After: A Full Summary Of What "They" Are Saying – ZH
UPDATE 2
The long farewell to
quantitative easing – Gavyn
Davies / FT
Quantitative easing has demonstrated to politicians everywhere that it
is possible to finance government deficits simply by printing money, a fact
which had become obscure in the developed economies in previous decades. The
umbilical link, previously unchallenged, between running a budget deficit and
the requirement to sell bonds has been broken in the mind of the political
system. Who knows what the long-term effects might be.
The Fed swaps one
course of monetary drugs for another – The
A-list / FT
The Federal Reserve
Tapers: In Search of Calmer Waters – Macro
and Markets
Together, last week’s fiscal deal and the Federal Reserve’s taper
decision appears to have marked the start of a period of relative calm where
U.S. macro policy uncertainty will be far less of a driver of markets. That’s
good news for the global economy.
Why Do So Many People
Hate QE? – View
/ BB
Dislike of the Fed * Wrongly Positioned: Equities * Rightly Positioned:
Goldbugs * Ideology * Job Confusion * Fixed-Income Investors
Watch the risk
premium! (Fed taper edition) – Humble
Student
If EM spreads were to start reversing themselves and start blowing out,
then the contagion could potentially spread to other markets and the result
would be a catastrophic market sell-off.
Bernanke Drop the Mic
as He Exits the Fed – Daniel
Gros / The Daily Beast
The charisma-free Federal Reserve chief looks a little wearier after a
tumultuous term. But he’s offering his successor, Janet Yellen—and the
markets—a going-away present.
The Fed Tapered
Perfectly—Here's What It Needs To Do Next – The
Atlantic
That best policy—what Janet Yellen calls "optimal
control"—calls for above-target inflation the next few years to bring down
unemployment faster… In other words, the
Fed doesn't need to figure out how to keep monetary stimulus constant even as
it tapers. It needs to figure out how to increase monetary stimulus even as it
tapers. Or stop tapering.
Forward Non-Guidance – Francis
Coppola / Forbes
Markets will only be guided if the direction is credible. If it isn’t,
they will go their own way.
Fed taper pressures
emerging markets – FT
Concerns that a strong US dollar could drag on growth in 2014
FIRST MARKET REACTIONS
Bonds Shrug As Taper Smashes Stocks To Record Highs – ZH
U.S. Stocks Rise to
Record After Fed Plans Stimulus Cuts – BB
S&P 500 Surges to Record as Treasuries Retreat After Fed – BB
Stocks gain on Fed decision to taper, euro gains – Reuters
Dow, S&P 500 end at record highs after Fed trims stimulus – Reuters
Asia shares climb on Fed commitment, dollar jumps –
Reuters
Emerging markets take taper in their stride – FT
India: taper fears fade
for now – beyondbrics
/ FT
EM vs QE: 5 reasons for the collective markets taper shrug – beyondbrics
/ FT
Europe Likes the Taper Message Too – WSJ
European Stocks Rise After Fed as Asian Currencies Drop – BB
European shares rally as Fed sugar-coats taper move – Reuters