Breaking News: The Federal Reserve has just announced that will not taper its ongoing bond purchasing program, which is currently running at $85 billion per month. And the Federal Funds rate—the benchmark interest rate—will remain between 0% and 0.25%. The Committee plans to keep interest rates near zero even after it phases out asset purchases—it doesn’t plan to raise the target rate until unemployment has fallen below 6.5%.
The major indices, which were slightly in the red in the hours leading up to the announcement, popped up following the announcement. That’s because many believed that today would be the day that the Fed finally announced plans to taper.
This is the second time this week that the market has rallied on news from the Fed. If you remember back to Monday, Wall Street celebrated that Larry Summers won’t be seeking the Fed chair for when Ben Bernanke’s term expires in January. Summers was President Obama’s first choice, but key figures on Capitol Hill pushed back hard enough to get Summers to withdraw.
So that leaves just a few big contenders: Former San Francisco Fed President Janet Yellen, former Fed Vice Chair Donald Kohn, and former Treasury Secretary Tim Geithner. My money is on Yellen, who is the favorite of progressive and women’s groups.
Now Janet Yellen is a dove, which generally means that she prefers keeping rates low to spur economic growth, even if it encourages inflation. This is important because she’s widely seen as an accommodative person. Yellen would be more resistant to stopping the Fed’s accommodative policies that Wall Street has gotten so addicted to. There is still a serious unemployment problem in this country and many expect that the Fed would pump more under Yellen than under a hawk.
The bottom line is that the Fed has is staying the course in terms of asset purchases, and with Janet Yellen the most obvious pick for Fed chair, tapering won’t likely be in our immediate future.