Fed Taper Talk Heats Up as Economy Improves

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Non-manufacturing business conditions in the United States continued to improve in July, according to the latest ISM Report on Business. The Institute for Supply Management reported that its index for the non-manufacturing sector increased 3.8 percentage points on the month to 56 percent, indicating that America’s service economy grew at a faster rate in July than in June.

On a different day, the positive ISM report may have been enough to buoy market optimism and equity prices. But Monday’s markets apparently had bigger fish to fry and declined in midday trading, instead chasing comments made by Dallas Fed President Richard Fisher in a speech he gave in Portland, Oregon. Fisher has often been critical of the U.S. Federal Reserve’s program of quantitative easing, and he pointed out that the Fed is getting closer and closer to tapering asset purchases as economic conditions improve.

With this in mind, positive economic data is a mixed blessing for the equity markets, which, as Fisher said Monday, “have become too accustomed to what some have depicted as a Fed ‘put.’”

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