Earlier in 2013, I made a shocking prediction. I said the era of cheap, easy Federal Reserve money was going to come to a long, drawn out end. I predicted that the Fed would start tapering its mammoth quantitative easing (QE) program late last year, and would eventually whittle it down to nothing.
My timing was off by a few weeks. They didn’t taper in September. But when all of Wall Street said that meant they wouldn’t pull the trigger until much later in 2014, I stuck to my guns and called for a shocking December move. Sure enough, they agreed to slash $10 billion from the QE program last month — and at their policy meeting today, they did it again.
|Today, the Fed announced it would shrink its QE program by another $10 billion, to $65 billion.|
Specifically, the Fed said it would shrink its QE program by another $10 billion, to $65 billion. Policymakers also strongly implied they will continue reducing their bond buys going forward. That means QE could be whittled down to nothing at the coming handful of meetings. And that, in turn, sets the stage for actual short-term interest rate hikes.
The ramifications of these moves will be widespread and severe for both the interest rate markets and the markets that take their cues from them — which, frankly, are pretty much every market on the planet.
We’re already seeing vulnerable emerging markets impacted by the Fed’s moves. Central banks in Turkey and South Africa have been forced to respond to the Fed’s policy shift by jacking up their interest rates — by as much as a whopping 425 basis points (4.25 percentage points). Other countries as far flung as Indonesia and Brazil have already done the same.
I believe this turnaround in interest rate policy … potentially the biggest one in 37 years … is THE most important market story for the foreseeable future.
If you care about your bonds, your stocks, your currency investments, your real estate holdings, or virtually anything that is impacted by the cost of money, I urge you to stay abreast of the shifting sands in the interest rate markets. And I promise to do my dead level best to help you navigate all these developments in the days, weeks, months, and years ahead.
Until next time,