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Fed tapering begins in US. Stock markets welcome.

The much anticipated tapering measures by the U.S. federal reserves has been officially announced. In a series of measures indicating that the economy is returning to normalcy, the US federal reserve has announced that it will gradually pull back the bond purchases.

Video Courtesy: Bloomberg

Ben Bernanke, the chairman of the United States Federal Reserve, held a press conference on Wednesday, in which he announced that the Fed has decided to reduce its bond purchases by $ 10 billion leading to $75 billion a month, starting from the next year.

The move, as announced by Bernanke, is a first step in and the Fed would likely to continue the cuts at a “measured” pace through out the year 2014, if the economic indicators such as the job gains continued as expected, eventually leading to the program being fully withdrawn by late-2014.

Although the economy has shown signs of some revival, with the jobless rate falling to 7%, Bernanke has suggested that the Fed will still be cautious in withdrawing the series of measures introduced to aid the ailing economy.

Earlier, it was indicated that a threshold of 6.5% in the unemployment rate would trigger the Fed to raise the short term interest rates. However today during the conference, Bernanke was cautious in telling that the rate should fall well below the 6.5% level for the Fed to initiate the raising of the short term interest rates. These rates have been almost at zero since the year 2008.

Stock Markets cheer

Stock markets however have received this news item with a surprising upmove. The Dow Jones Industrial Average moved up 293 points to close 1.8% higher at 16168. The Nasdaq was up by 1.2%, while the S&P 500 was up by 1.7%. It becomes interesting to watch how the markets react to this news during the coming days, as Fed announces more steps to be withdrawn gradually.



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