The markets have been obsessing about the Fed tapering. There have been huge swings in each direction whenever the topic is in the headlines. So, Wednesday’s Fed Statement will undoubtedly create volatility. Among the many questions traders have for the Fed, some are: when will the Fed begin tapering? By how much? And will the Fed taper just Mortgage Backed Securities (MBS) or Treasuries or a mix? It’s unlikely we will get clear answers, so there will be a lot of reading between the lines to search for clues. Adding to the drama are the quarterly Fed Forecasts, which will also be a part of this meeting. The forecasts have been far from accurate in the past.
So why the obsession with tapering Quantitative Easing? A look at the chart below shows the amazing correlation between QE and the move in the Stock market. It’s no wonder why the markets are hanging on every word.
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