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The Real Reason For No Taper

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    September 20, 2013

    Prior to the Federal Reserve’s September policy meeting the markets, and analysts, had almost universally accepted a cut in the current quantitative easing (QE) program of $10-15 billion in bond purchases each month from the existing $85 billion program.  Those expectations were built upon the tacit belief that the economy was improving and set to expand much stronger in 2014.  Even the Federal Reserve initially confirmed these sentiments by stating in their post-meeting announcement that:

    “Information received since the Federal Open Market Committee met in July suggests that economic activity has been expanding at a moderate pace. Some indicators of labor market conditions have shown further improvement in recent months, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening…”

    However, the “shock” came when the Federal Reserved went against the consensus and stated that they would continue the current QE program “as is” with no reductions in the amount of bond purchases.

    “However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”

    Here is the question that should be asked:

    The interesting question becomes what happens if the current Administration quickly comes to an agreement that raises the debt ceiling, increases government spending with few, or no, tax increases?  The removal of such an impediment, supported by $85 billion a month in liquidity, could easily send stocks into a “melt up.”   At that point will the Fed act between meeting to begin to reduce, or eliminate, the current QE programs?  Or, will they allow asset prices to push higher as they wait for real economic growth the strengthen?

    It seems like we are leaving an awful lot of our economic, and financial futures, based upon assumptions of a small group of economists.   Maybe it really is time to worry

    Images: Flickr (licence attribution)

    About The Author

    Lance Roberts – Host of StreetTalk Live

    After having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; Lance has pretty much “been there and done that” at one point or another. His common sense approach has appealed to audiences for over a decade and continues to grow each and every week.

    Lance is also the Chief Editor of the X-Report, a weekly subscriber based-newsletter that is distributed nationwide. The newsletter covers economic, political and market topics as they relate to the management portfolios. A daily financial blog, audio and video’s also keep members informed of the day’s events and how it impacts your money.

    Lance’s investment strategies and knowledge have been featured on Fox 26, CNBC, Fox Business News and Fox News. He has been quoted by a litany of publications from the Wall Street Journal, Reuters, The Washington Post all the way to TheStreet.com as well as on several of the nation’s biggest financial blogs such as the Pragmatic Capitalist, Zero Hedge and Seeking Alpha.