"As for the Fed's future plans: "If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course…"
In the press conference following the release of the statement, Fed Chairman Ben Bernanke suggested that the Fed anticipates similar-sized ($10 billion) reductions in purchases at upcoming meetings. That would suggest a finale to quantitative easing toward the end of 2014, given that there are eight meetings each year. When asked about likely-incoming Chair Janet Yellen's perspective, he mentioned she was fully supportive of the decision to taper.
Today's market reaction may ease some of the consternation of Fed watchers that believe there is no way the Fed can engineer a benign exit from its unprecedented policy easing/unwinding of its near-$4 trillion balance sheet. But history may be instructive. As Schwab's fixed income strategist Kathy Jones has noted in her recent commentary, in the post-World War II era, the Fed's holdings of US securities totaled about 22% of GDP- the same as the current level. In the 1940s and 1950s, the Fed pursued very similar policies to deal with the debt that was incurred during the war. Eventually the Fed's policies were unwound and the balance sheet restored to normal with limited disruptions; including no major uptick in either inflation or interest rates".
Source: Liz Ann Sonders, Schwab.
It sounds really optimistic,time will tell. Still the global economy has a lot of headwinds to deal with.
