Yesterday the Fed announced to take baby steps and begin winding down its asset purchase program in January.

Yesterday the Fed announced to take baby steps and begin winding down its asset purchase program in January. The Fed will cut its QE pace next month to $75B on improved job market outlook reducing Treasury and MBS purchases by $5B each. Although this is a modest tapering, we knew the Fed would begin tapering, we just didn’t know when. Gold had a knee-jerk reaction once the minutes were released plunging to the 1220 level and bouncing back up to a high of 1244 just moments later. The Fed remains dovish on rates and wants to keep the federal funds target rate between 0-.25% as long as the unemployment rate remains above the  6.5% threshold  and inflation doesn’t exceed more than a half percentage point above the 2% long run target range. The markets rallied by more than 290 points after absorbing the news with the DJIA closing at a new high of 16,167.97. Markets welcomed the tapering with open arms as they should since this cut back can stimulate confidence into the economy. Bernanke’s “timeline” is to continue having a systematic month to month tapering at increments of $10B/month as long as economic data meets expectations. Janet Yellen, the soon to be Federal Reserve Chairwoman, supports Bernanke’s decision of a modest cutback since the economic recovery still remains far from complete. Initial jobless claims for the week ending 12/14 are at 379,000 vs. last week’s claims of 369,000. Gold continues to head towards a downward path as we are currently watching it break under 1200!

Have a wonderful day.