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Alternative Market Briefing

Fed tapers, and the band plays on

Thursday, December 19, 2013

Bailey McCann, Opalesque New York:

In a much-watched vote the Federal Open Market Committee (FOMC) agreed to start cutting back on its bond buying program. The Federal Reserve will cut its monthly purchases to $75bn, down $10bn from previous months. In a statement the Fed said that it would continue to reduce its asset purchases in "measured steps" if the economy continues to improve.

Currently, the Fed holds approximately $4tn in bonds and efforts to unwind these holdings are rife with risks from inflation to market corrections. Despite these risks, the Dow Jones industrial average soared 293 points to close at 16,168 - a new high - while the S&P500 was up 30. The rallies quelled any fears that the announcement would set off a panicked reaction like that seen in June when rumors first emerged that the Fed might start cutting stimulus.

In addition to the cuts to bond buying programs, the Fed has also indicated that it will keep its forward guidance on interest rates remaining low over the near term. CBS News noted that the amount of bonds held by the Fed was limiting the amount of quality bonds available to investors, which added support to those who support cutting back on the buying program. Still, others have called the $10bn reduction "taper light".

Bank of Japan officials ......................

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