Why Fed Asset Tapering Is a Good Thing: Opinion
NEW YORK (TheStreet) -- The nonfarm payrolls reports of the last few months and a recent bipartisan agreement in Congress aimed at preventing another government shutdown have increased speculation the Federal Reserve may begin cutting back on its asset purchases, what's become known as "the taper," before year's end.
One could argue that this will actually be a good thing for equity markets by providing certainty and removing the tapering headwind, even as it is expected to knock stock prices down. But is that really a bad thing?
The market speculated the Fed would begin tapering its economic stimulus in September. Why? Ben Bernanke, the former chairman of the Federal Reserve, never said he was considering a September taper.
However, the Federal Reserve did state that it wanted to begin tapering sometime this year, pending economic growth data and other considerations such as the effect of the last government shutdown. The Fed's final meeting of this year is next week.
I'm not sure why there's been so much emphasis on the taper in the first place. Yes, less money will be pouring into mortgage-backed securities and Treasury bonds, but it's not as if the Fed will stop buying them altogether, or -- gasp! -- is considering selling its positions.
Rather, instead of buying $85 billion worth of these assets per month, it would only be buying $75 billion or $70 billion. That's not all that bad, is it?
Here's why I think tapering creates a win-win-win scenario.
First, it marks an important change to our economic policy and signals the economy appears to have finally turned the corner. The Fed's action implies the economy has enough strength and organic growth to stand on its own two feet.
Second, it's widely assumed a tapering announcement will knock down stock prices. This might not be good for the buy-every-single-dip-in-the-world crowd, but it's a great thing for long-term investors.
Take a second and consider how many people haven't participated in this year's rally. At this point it seems like I've spoken with more angry investors who have missed the huge move up than investors bragging about this year's big gains.
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