US Federal Reserve Delays Taper: Implications

Below is a quick summary of the US Federal Reserve's decision yesterday to delay tapering its current quantitative easing (QE) policy.

  • No Taper: The Fed will continue buying US$85bn of mortgage-backed and government securities every month. This decision is more dovish than we expected, as we had previously assumed that we would see at least some taper announced at the September 17-18 Fed meeting. The next chance to taper is late October.
  • Surprise Move: Markets were also caught off guard, prompting a major rally in fixed income that took out strong, multi-month resistance levels. The S&P 500 Equity Index also hit an all-time high yesterday. The US dollar fell against currencies around the globe.
  • More Volatility Ahead: While tapering is inevitable down the line, we believe the latest Fed move increases uncertainty, as the market thought it understood the Fed's criteria for tapering, and then the Fed didn't act as the market thought it would. We believe this decision increases the potential for market volatility in US equities and fixed income, as well as in Emerging Market assets, going forward.

Our full analysis on US monetary policy and its impact worldwide is available to subscribers at Business Monitor Online.