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Fed Announces It Will Taper Bond Buying

Federal Reserve Chairman Ben BernankeThe Federal Reserve announced today at 2PM that it will taper quantitative easing, the $85 billion-a-month mortgage bond purchasing program designed to keep interest rates low to encourage people to borrow and invest. The taper will start slowly, at $10 billion less a month.

Beginning in January, the Federal Open Market Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.

This decision shows that not only the economy is getting better but the Fed now believes we are in a legitimate stable recovery.

Back in September it came as a big surprise when Bernanke said they would not taper quantitative easing.  Even talk of the possibility of tapering the bond buying program affects interest rates. In June, mortgage rates surged higher in response to a press conference where Federal Reserve Chairman Ben Bernanke said that if the economy continued to improve the Fed could slow quantitative easing later in the year.

For the past few days interest rates have remained relatively flat, and will most likely remain steady for now.  We expect to see interest rates begin to rise in late January.

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