By: Dr. Lynn Reaser
Yes. The Federal Reserve needed this meeting to communicate to markets that a scaling back of asset purchases is now likely to take place by year-end if job growth continues at a sizable pace and there are further signs of an easing in unemployment. Long-term interest rates have already moved up significantly (see link below). An immediate “tapering” of purchases could have caused much more massive disruptions in stocks and bonds. If the economy slowed again, the Fed would have been forced to ramp up asset purchases, causing disturbing volatility in monetary policy. Investors and markets have been put on notice, which is enough for now.
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