Fed’s Tapering Process Continues

In a process that has been described as ‘tapering’, the Federal Reserve made it known that it will be reducing its bond-buying program by a further $10 billion in February, following its January reduction of the same amount. The Federal Reserve had been buying $85 billion in bonds on a monthly basis since September 2012 as part of its plan to stimulate the economy. It started tapering this amount in January by spending $75 billion on bonds and, following the final meeting chaired by Ben Bernanke, an official statement by the Fed noted that the data generated since its last meeting in December indicates that economic activity had picked up sufficiently to warrant the reduction in bond buying. The decision to continuing tapering bond buying was reportedly unanimous among the ten voting members of the Federal Reserve, despite the weak December jobs report which showed that hiring dropped from the average of 205,000 per month in the past three months, to 74,000 jobs.

Some analysts expressed surprise at the fact that the Federal Reserve made no mention of the so-called ‘Fragile Five’ – Turkey, Brazil, India, Indonesia and South Africa – emerging economies that have seen rapid declines in their currencies as a result of investors withdrawing, but it was concluded that the unsteadiness of global markets was not expected to upset US markets unduly.

Having been appointed by President George W. Bush in 2006, Ben Bernanke served as chairman of the Federal Reserve for eight years, during which time the country went through its deepest recession since the Great Depression. While many of his peers are of the opinion that his leadership prevented a bad situation from being even worse, his critics have voiced concern that negative consequences of the Fed’s stimulus program will come to the fore in the near future.

Current Vice Chairperson, Janet Yellen, takes over from Bernanke at a time when US stock markets had its worst week in years and foreign currencies are plunging. Analysts note that one of her first challenges will be deciding whether to continue with the tapering of bond-buying and all the implications that brings. Yellen will chair her first Federal Reserve meeting in March.