The Federal Reserve Bank (the “Fed") had a large quantitative easing (QE) program in 2013; there were rumors in mid-2013 that the Fed would “taper” and end the program. The blog Zero Hedge published on May 10, 2013, “Previewing The Market’s ‘Taper’ Tantrum.” On June 19, Fed Chairman Ben Bernanke hinted that the “tapering” would possibly occur in September 2013; the financial markets went into a “taper/temper tantrum” and went down.
On June 19, 2013, Zero Hedge posted “SocGen Taper Tantrum Post-Mortem: ‘FOMC On Track For September Tapering’”:
“Who though that a term we coined over a month ago would suddenly get so much airplay ...”
Wikipedia: Quantitative easing
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions, thus increasing the monetary base. This is distinguished from the more usual policy of buying or selling government bonds in order to keep market interest rates at a specified target value.
Expansionary monetary policy typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates. However, when short-term interest rates are either at, or close to, zero, normal monetary policy can no longer lower interest rates. Quantitative easing may then be used by the monetary authorities to further stimulate the economy by purchasing assets of longer maturity than only short-term government bonds, and thereby lowering longer-term interest rates further out on the yield curve. Quantitative easing raises the prices of the financial assets bought, which lowers their yield.
On Wednesday, June 19, Ben Bernanke announced a “tapering” of some of its QE policies contingent upon continued positive economic data. Specifically, he said it would scale back its bond purchases from $85 billion a month to $65 billion a month during the upcoming September 2013 policy meeting. He also suggested that the bond buying program could wrap up by mid-2014. While Bernanke did not announce an interest rate hike, he suggested that if inflation follows a 2% target rate and unemployment decreases to 6.5% threshold, the Fed would likely start raising rates. The stock markets subsequently dropped approximately 4.3% over three trading days following Bernanke’s announcement, with the Dow Jones dropping 659 points between Wednesday, June 19 and Monday, June 24, closing at 14,660 at the end of the day Monday.
Previewing The Market’s “Taper” Tantrum
Submitted by Tyler Durden on 05/10/2013 15:21 -0400
The reason for yesterday’s late day swoon was a humorous tweet, which subsequently became a full-blown serious rumor, that the WSJ’s Hilsenrath would leak the first hint that the Fed is contemplating preannouncing the “tapering” of its $85 billion in monthly purchases. Naturally, this did not happen as we explained. And yet, judging by the market’s response there is substantial concern that the Fed may do just that. To be sure, it is quite likely that in addition to just rumblings out of economists, which are always wrong and thus ignored, that one of the Fed’s unofficial channels may hint at some tightening in the monthly flow (if certainly not halt, and absolutely not unwind). Which makes sense: all previous instances of non-open ended QE took place for up to 6-9 months before the Fed briefly let off the accelerator to see just how big the downward response is. The problem now, however, is that even the tiniest hint that the grossly overvalued “market”, which has risen only thanks to multiple expansion for the past year, would lead to a massive overshoot not only to whatever an ex-Fed “fair value” may be, but overshoot wildly as the liquidation programs kick in across a Wall Street that is more liquidity starved today than it has been in a decade.
The Big Picture
by Barry Ritholtz - June 18th, 2013, 4:00pm
The Times’s David Gillen on market gyrations as Wall Street and world economies tries to guess when the Federal Reserve will slow, or taper, its extraordinary measures to bolster the economy.
SocGen Taper Tantrum Post-Mortem: “FOMC On Track For September Tapering”
Submitted by Tyler Durden on 06/19/2013 16:21 -0400
Who though that a term we coined over a month ago would suddenly get so much airplay: why, it was none other than billionaire hedge fund investor David Tepper who said days later (and just in time to top tick the market) not to fear the taper, that it is a bullish sign. Looks like it wasn’t. But at least Tepper sold everything he had to sell by now so someone is happy. As for what happens next, nobody still has any idea, although the first, and so far best, post-mortem of Bernanke’s predicament comes from SocGen, whose opionion is simple enough: FOMC on track for September tapering.
Bernanke Taper Tantrum!
Published: Wednesday, 19 Jun 2013 | 4:03 PM ET
By: Bob Pisani | CNBC “On-Air Stocks” Editor
Taper Tantrum! I said this morning that it was easier to predict what Ben Bernanke will say than what the market will do, but that many traders felt stocks would drop no matter what was said.
Sure looks to be the case.
Market’s ‘Taper’ Tantrum Extends to Fourth Day
By Nick Summers
June 24, 2013
Stocks around the world extended their petulant selloff today, with the Standard & Poor’s 500-stock index down 1.9 percent in the first hour of trading, four business days after Ben Bernanke said the economy was improving so much the Federal Reserve will eventually wind down its stimulus policies.
Bonds also fell in the U.S. and around the world. The yield on 10-year Treasuries rose to 2.616 percent, which means prices went down; the rate is still near a record low, but has climbed more than a full percentage point since July.
RPT-GLOBAL ECONOMY-Taper tantrum conceals brightening growth picture
Mon Jun 24, 2013 1:55am EDT
LONDON, June 23 (Reuters) - Markets dismayed by the Federal Reserve’s stimulus withdrawal timetable might be in no mood for good news, but evidence is mounting that other rich economies are joining the United States on the road to recovery.