Markets rally as Fed announces tapering

Outgoing US Federal Reserve’s chairman Ben Bernanke has announced that the US government will start cutting its bond-purchasing programme by $10bn in January.

The move to begin tapering the Fed’s $85bn per month bond-buying programme by $10bn in January came alongside the pledge to keep interest rates low for an extended period.

During his latest press conference, Bernanke (pictured) said the purchases would likely be cut at a “measured” pace through much of next year if job gains continued, with the programme being fully shuttered by late-2014.

After a brief pullback, US stocks started rallying with both S&P 500 and Dow industrials closing at all-time highs.

The Dow climbed 1.84% to 16,168 while the S&P 500 rose 1.66% to 1,810.

Japan’s stock market also hit a new six-year high overnight, and the Australian market jumped 2%.

Rick Rieder, Chief Investment Officer of Fundamental Fixed Income at BlackRock, welcomed the decision by commenting: “We’re pleased with the Fed’s decision, having long argued that the last round of QE was too large and disrupted the proper functioning of financial markets without meaningfully helping the labour market. This is a step in the right direction.”

Jean-Sylvain Perrig, CIO of Union Bancaire Privée (UBP), added: “Bernanke was agile in his communication, clearly keeping tapering separate from rate hikes. This means that even if the unemployment rate falls below 6.5%, it will not automatically trigger a more restrictive monetary policy.

“In short, equity markets can breathe easy as this is the best-case scenario: stronger economic growth and a benevolent central bank. We remain resolutely bullish for equities and prefer growth to value stocks.”

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