16-Aug (Washington Post) — There has been an abundance of handwringing on Wall Street over when the Federal Reserve will begin scaling back the monthly bond purchases that have boosted the stock market and tamped down interest rates. Embedded in the anxiety is the assumption that the taper will be a Very Big Deal, one that signals the central bank’s plans for the remainder of its quantitative easing program, the path of interest rates and for when it believes the panda at the National Zoo will have a cub.
But what if those fears are unfounded? What if the taper is … tiny?
…One potential compromise would be a tiny taper. What is tiny? The Fed is currently buying $85 billion a month in Treasurys and mortgage-backed securities. Wall Street expects the central bank to cut that amount by $20 billion to $25 billion, likely starting with Treasurys. A tiny taper would be anything smaller, though a figure less than $10 billion could just look silly. In other words, in September the Fed could reduce purchases to $75 billion a month instead of the $60 billion or so Fed watchers have been expecting, and then assess the impact on the markets before deciding its next move.