The Real Reason Federal Reserve Is Tapering
- uploaded: Mar 1, 2014
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The Federal Reserve often does the opposite of what they say. For example, in June of 2013, the Federal Reserve said they would not taper their bond purchases until mid-2014 at the earliest. They then announced 5 months later that tapering would begin January 2014. It's not a far stretch to believe that the Fed is not tapering for the reasons they have stated: the economy is getting stronger.
In fact, if the Fed really did taper when the economy was getting stronger, everyone would sell out of bonds and go into stocks causing the bond market to collapse. We are not seeing the bond market collapse right now as the biggest bond buyer in the universe has announced they will be buying less bonds. Why? Because investors are stepping in to buy bonds on the bad economic data over the last 2 months.
At the start of a Bear market, everyone sells out of stocks and buys bonds that have a guaranteed return.
Think about it. If the Fed tapers at the start of a Bear market, the mass amount of bond buyers will allow the Fed to sell and unwind their huge bond holdings. Therefore, it makes more sense for the Fed to taper at the start of a Bear market rather than the start of a Bull market as they claim.