Bernanke Announces Fed Taper, Stocks Surge

The Federal Reserve chairman said the economy has improved enough for the Fed to start slowly reducing its stimulus program.
Posted at 7:02 PM, Dec 18, 2013

In his last press conference as Federal Reserve chairman, Ben Bernanke made good on a promise made earlier this year: that as the country's economy improves, the Fed would begin to taper off its massive stimulus program.

"As you know, we've been purchasing $85 billion per month in longer-term agency and mortgage-backed securities. Starting in January, we will be purchasing $75 billion of securities a month." (Via C-SPAN)

"It likely signals the beginning of what Wall Street calls 'tapering.' Kind of a baby taper here. Basically the Fed is slowly but surely cutting the cord to get the economy rolling on its own." (Via CNN)

The quantitative easing program, dubbed QE3, began in September of last year, with the Fed buying up securities in order to keep stock prices high and interest rates low. (Via U.S. Federal Reserve)

Bernanke warned back in June that the tapering was on its way, and stocks took a temporary nosedive shortly after. (Via The Wall Street Journal, USA Today)

This time the stock market did the exact opposite. Why? (Via USA Today)

Well, a portfolio manager told The Wall Street Journal it's a vote of confidence for the economy. "We've been joking for the last few years that we've been living in our parents' basement and now our parents told us it's time to get out. I think that's a good thing."

Or it could be that the taper isn't all that drastic. Although Bernanke said the bond-buying program will continue to wind down, he also said banks could continue to borrow money practically free of charge for the foreseeable future — news that made housing and other industries that depend on low rates very happy.

"The Fed also in this announcement said that it's going to keep interest rates near zero, even if the unemployment rate should drop below 6.5 percent, which had previously been a threshold for the Fed." (Via Fox News)

All of these changes are dependent on the numbers. Bernanke said if unemployment doesn't continue to decrease and if inflation climbs above its target rate, the Fed could reverse the taper. Otherwise, analysts say expect the bond-buying program to end by 2015.