Is This a Sign Fed Tapering Will Hit the Jobs Market?
The tapering of asset purchases by the U.S. Federal Reserve seems imminent. Investors and economists around the world have indicated that a decision to reduce the number of mortgage-backed securities and longer-term Treasury securities being purchased by the Fed — currently at $85 billion each month — could be made as early as September, when the Federal Open Market Committee is next scheduled to meet.
The specter of this decision has hung heavily over the markets for months. Quantitative easing — the introduction of new money into the market — has four primary effects on the economy, including higher inflation expectations, currency depreciation, higher equity valuations, and lower real interest rates.
Or, to put it another way, QE changes the parameters under which the market operates. The Fed, acting in good faith in an attempt to stimulate business activity, effectively reduced the cost of money. This easy-money policy encouraged businesses and individuals to borrow and spend, behavior that may be most evident in the recovery of the housing market following its collapse during the financial crisis.