Taper time

As the year comes to an end, the US Federal Reserve has announced it is ‘tapering’ its programme of quantitative easing.

It will scale back the programme designed to boost the US economy from $85bn a month to $75bn a month.

The announcement was combined with a commitment to keep interest rates low.

A promise of future low interest rates, until unemployment rates fall to 6.5%, and the relatively small scale of the cutback resulted in a positive response from global equity markets.

The FTSE 100 index of leading UK company shares finished the day up 92.62 points (1.43%) at 6,584.70.

France’s CAC grew by 1.6%.

Markets had clearly been expecting more from this taper, hence their positive reaction to the removal of some economic stimulus.

More tapering is expected next year, with Fed chairman Ben Bernanke commenting:

“If incoming data broadly support the committee’s support for employment we will likely reduce the pace of committee’s purchases in further steps at future meetings.”

However, the announcement today represents a positive indication that the US (and global) economy has entered a period of sustained recovery.

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