After a decade of Quantitative Easing (QE), the next FED act must be grinding out a tapering decade, as the FED begins Quantitative Tightening (QT). The QT program unwinds the effects of the previous decade of QE. QE poured an ocean of stimulus funding into the economy following the 2008 financial crisis. As a result, those trillions of dollars ballooned the FED balance sheet even while markets and the economy recovered and grew. That once welcome massive FED investment then becomes a looming threat to continuing prosperity.
What you learn:
You learn of the FED program change happening as the FED begins Quantitative Tightening. The lesson discusses how the FED unwinds the massive financial injection used to overcome the 2008 financial crisis. The QT program removes a lingering economic threat.
Understanding QE and QT gives investors an understanding of the need for the FED to grind out a tapering decade. That deeper knowledge of the market and how the economy works helps you become a better investor. Knowing that also helps investors grow in awareness of risks, opportunities, and how superior investors are able to react to and use changing market conditions.
FAQ investors ask about FED Quantitative Tightening and Tapering
These questions and answers about FED tightening and tapering have overlapping answers which help investors understand how stock markets, investing and money-making interrelates.
What are the effects of tightening monetary policy?
The FED responds to inflation by tightening or raising interest rates to reduce the money supply, which decreases purchasing power. That lowers consumption, demand, and production to slow the economy. It takes months, but those reductions ease inflation.
Reducing the money supply is a powerful but blunt instrument. It raises the cost of borrowing, which impacts all parts of the economy, including every consumer and business. That universal impact subjects the economically guilty and innocent to unavoidable deflationary pressure.
It also can bring some adverse effects, including increased unemployment and lower national growth. But the greater good justifying the financial pain is economic stabilization and renewed prosperity.
Why does the FED tighten monetary policy?
The Fed tightens monetary policy by raising interest rates to combat inflation, which reduces money's purchasing power and devalues paychecks.
High inflation costs include unemployment and declining growth, making saving difficult, and social disruption can ripple through society. The poor do worse as rising prices hit low incomes harder, while governments and the wealthy fare better.
Although high interest rates are unpopular, they can reduce economic activity and lower inflation. Once inflation is under control, the FED can gradually ease monetary policy and return to normal conditions over time.
What is Quantitative Tightening?
Quantitative Tightening (QT) is the plan to unwind Quantitative Easing (QE). QE is the FED money creation program to purchase securities or bonds to fund mortgages, which began in response to the 2008 financial crisis and continued through the COVID-19 pandemic.
That funding kept credit and markets working but resulted in a massive growth in the FED's balance sheet and the undesirable effect of pushing private capital out of the market. So QT eases, then ends that funding and shrinks the balance sheet.
The expectation is that private funds will return as the FED withdraws, interest rates increase, and the debt matures (over 5 to 10 years).
But like QE, QT has never been done before, so expect some wrinkles and surprises.
When did the FED start Quantitative Tightening?
The FED began quantitative tightening (QT) in October 2017 by not reinvesting funds as massive amounts of FED-funded mortgage-backed securities matured. That began the balance sheet reduction expanded by the quantitative easing (QE) response to the 2008 financial crisis.
The previous ultra-low interest rate era ended when inflation erupted from the lingering impact of the 2008 financial crisis, COVID-19 disruptions, and Russia's 2022 attack on Ukraine.
The FED responded to inflation in two significant ways. First, it implemented quick, progressive interest rate hikes, which take months to affect the economy.
Second, quantitative tightening began the FEF's progressive withdrawal of mortgage market funding, making the return of private capital easier.
Why does FED easing, tapering, or tightening matter?
The FED and other central banks may ease or taper to lower interest rates in a slow economy. That can reduce borrowing costs, making loans and payments more manageable, which stimulates the economy.
Economic activity and employment increase as more businesses and individuals borrow to buy material, fund projects, and expand or launch companies.
In contrast, when inflation and the economy are too hot, the FED tightens or raises interest rates. That pushes interest rates higher, increasing borrowing costs, which slows the economy to cool things down.
What is FED tapering and tightening?
The FED, the U.S. Central Bank or Federal Reserve, expands or tightens the money supply to make credit work and heat or cool the economy.
But the extreme financial event of the 2008 financial crisis began FED Quantitative Easing (QE), a torrent of funding to make credit and banks work when private capital ran from the market! Then COVID-19 continued the program. As a result, the FED's balance sheet ballooned, and less private money funded credit.
So, returning to traditional capital markets means reducing and withdrawing FED funds as private capital returns. As QE continued for years, expect the withdrawal program, Quantitative Tightening (QT), to take years. Rising interest rates to fight Inflation will bring complications.
FED Easing, Tapering, or Tightening Explained
The actions of the FED play a crucial role in the overall health and direction of the economy. When the FED engages in easing, tapering, or tightening, these actions significantly impact economic growth, inflation, employment, and the financial markets. The FED's decisions are based on a variety of factors, including the current state of the economy, inflation rates, and employment data. Here's why these measures matter:
What is Easing?
Easing refers to the Fed lowering interest rates and purchasing securities to increase the money supply and encourage economic activity.
Why Easing Matters:
- Stimulates Economic Growth: Lower interest rates reduce the cost of borrowing for individuals and businesses, leading to increased spending and investment. That can help boost economic growth, especially during a recession.
- Increases Consumer Spending: Cheaper loans for homes, cars, and other big-ticket items encourage consumer spending, a significant component of economic activity.
- Boosts Employment: As businesses invest and expand, job creation typically follows, reducing unemployment rates.
- Supports Financial Markets: Easing can lead to higher stock prices as lower interest rates make equities more attractive than bonds and other fixed-income investments.
What is Tapering?
Tapering refers to the gradual reduction of the Fed's asset purchases. It's a step to gradually withdraw the monetary stimulus implemented during easing periods.
Why Tapering Matters:
- Signals Economic Confidence: Tapering suggests that the Fed believes the economy is strong enough to grow without extensive monetary support.
- Impact on Interest Rates: While tapering doesn't raise interest rates, it is often a precursor to future rate hikes. Markets closely watch tapering as an indicator of future monetary policy shifts.
- Market Volatility: The tapering announcement can lead to market volatility as investors adjust their expectations for future interest rates and economic growth.
- Adjusting Expectations: It helps the market adapt to a new normal, gradually shifting from a highly stimulated economy to one that can sustain growth independently.
What is Tightening?
Tightening involves the Fed increasing interest rates and reducing the money supply to curb inflation and prevent the economy from overheating.
Why Tightening Matters:
- Controls Inflation: By raising interest rates, the Fed makes borrowing more expensive, which can reduce spending and investment, helping to keep inflation in check.
- Slows Economic Growth: Higher interest rates can slow economic growth by making loans more expensive reducing consumer and business spending.
- Stabilizes the Economy: Tightening helps to stabilize the economy by preventing asset bubbles and excessive risk-taking, which can lead to financial crises.
- Influences Currency Value: Higher interest rates can attract foreign investment, leading to a stronger currency. That can impact trade by making exports more expensive and imports cheaper.
Easing, Tapering, or Tightening Consequences
The FED's actions of easing, tapering, and tightening are essential tools in managing the economy's health. Easing boosts economic growth and employment during downturns, but it's important to consider the potential long-term effects, such as inflation and asset bubbles. Tapering signals a transition to more typical economic conditions, but it can also lead to market volatility and economic slowdown. Tightening controls inflation and prevents the economy from overheating, but it can also lead to higher borrowing costs and slower economic growth. Understanding these mechanisms helps investors, businesses, and consumers make informed decisions and adapt to changing economic conditions.
Getting markets to normal
Massive government investment can distort markets and the economy. Such funds bring risks of inflation and interfere with normal free markets. On the other hand, once huge government funds are in place, withdrawing them also has risks. Moving too fast or too slow to withdraw that funding can bring on a market crash or recession. That is the challenge facing the FED after a decade of QE. They need to carry out a careful plan to withdraw.
QE worked in a time of financial crisis but at the cost and risk of having government dollars deeply embedded in markets. Those funds are shown on a ballooned FED balance sheet. To return to normal, open, and freely functioning markets, that massive financial intervention has to be unwound.
Unwinding that deep intervention needs care. As noted, there are risks for being too slow or acting too fast. The ocean of FED funds could heat up markets and send inflation soaring if no funds are withdrawn or if the FED acts too slowly.
But, withdrawing funds too quickly could chill markets and risk recession or worse. The FED has to pump that massive ocean of QE money from the market at just the right speed. As it took a decade to fill that ocean, we can expect it to take a decade to drain those trillions away!
Quantitative Tightening challenges investors
As always, in constantly changing markets, investors face challenges and opportunities. With the FED ready to grind out a tapering decade, that tapering strategy presents investors with challenges of both change and opportunity.
To profit from tapering and groupthink
QE groupthink looms as the FED unwinds its historic market intervention. With the FED set to begin QT, the risk of tapering groupthink can cost investors who fail to navigate tapering risks or protecting their investments against groupthink decisions.
Chair Bernanke began “Taper Talk”
Years and a pandemic later, talk of tapering still lands with an enormous and unwelcome thud. That always produces screams of protest! We were having fun at an investment party the never seems like it will end. But the ball may end when the host says the bar will soon get closed! This lesson got updated seven years later with QT and tapering still in play. This is certainly going to take years more yet. We can all be calm and carry on continuing to make excellent investments.
Talk of Fed tapering was started by Chairman Ben Bernanke during his term. But, it really got underway when the next FED Chair, Janet Yellen served and QT continues under current Chair, Jerome Powell. All this is accompanied by market reactions and the always high volume of strident commentary.
All that continual noise can confuse investors as the FED begins QT. Be confident that most financial market noise is of little or no consequence. As always much financial market noise is an uninformed comment. Just remember, you can be confident the FED remains in good hands. These people do know what they are doing.
For QT, the FED has called in the economic and financial plumbers to find workable plans to drain that ocean of liquidity. And they have to do it with care while the economy continues to rush into the future. Just what do you do with those few extra trillion dollars? Careful and gradual use of QT is the answer so expect the FED to grind out a tapering decade.
Groupthink may set a trap
Just as QE took was unprecedented territory when the Japanese first applied it, the unwinding will carry us into a new economic world of discovery. One risk is falling into a groupthink trap.
Groupthink can produce mindless selling triggered by emotional and knee-jerk reactions to tapering talk. The sky is not falling and will not fall. Just stick to the facts, ignore the unending opinion bleats from the talking head herds. Most seem made to fill airtime, come without any critical thought and add no useful insight. Reacting to the noise can produce stock and bond market turmoil. Just don’t bother to get bothered.
Tapering groupthink can cost investors who fail to navigate the tapering noise risks or protect themselves against groupthink actions. QE and QT groupthink loom as the FED unwinds their historic market intervention. QE worked out very well for us and the markets. I expect QT to also be a well-managed and carefully executed process.
Why does tapering matter?
When it comes to easing or tapering QE, they, the FED administrators, really are making it up as they go along! But there is no dark or evil plot, rather our economic leaders are plotting a course through uncharted economic seas. So far, QT has never been tried on anywhere near this scale before. It is simply nothing any human has yet managed to do. This grand experiment is our economy!
The only prior experience I can think of is the period 1946-1951 as the FED worked to unwind the effect of massive government investment in World War II. That went reasonably well and so will this.
But stimulus continues as needed. The U.S. Federal Reserve Bank continues to pump massive amounts of money into the economy as they see fit. This stimulus program will wind down and end. That will be when the economy picks up and shows progress without needing the continuing massive Fed funding. Tapering means this will gradually happen as the FED, in effect, takes their foot off the gas, then coasts to slowly slow and eventually, lightly touches the breaks. This will take years to accomplish.
Tapering describes the planned slow reduction of programmed Fed spending. At the height of the crisis, the Fed program was deeply involved in funding virtually all the mortgage market. The Fed continues buying mortgages but has backed away from the maximum rate of $85 billion per month.
At the peak, think of that program as buying or strongly influencing the purchase of virtually every 5-year mortgage bond available in the U.S. market! That massive Fed fund flow has kept the mortgage market alive. That kept housing alive. That in turn kept the economy alive. And that kept the stock market alive.
What is a normal mortgage market?
In normal times mortgages are funded by private capital. A substantial portion of all funds raised in the bond market provides the capital for most mortgages. As part of the 2008 financial crisis, the market collapsed.
To get the market going the Fed uses its massive spending power. The current immense purchasing program serves as an important part of the ongoing Fed economic stimulus program.
Tapering is the slow or controlled removal of QE. As markets and the economy revived the FED could slow, then stop those asset purchases. As economic expansion continues, they can now work at reducing the massive balance sheet the FED has due to the assets purchases.
Tapering risks includes the possibility of recession if the tapering gets too aggressive. The change has to be gradual. On the other hand, too little tapering and inflation could rise.
Fed stimulus turns to housing
The Fed rescue led by Ben Bernanke succeeded in turning the housing market. As a direct response to the 2008 disaster, a time of massive bankruptcies and foreclosures has slowly been put behind us. Now housing continues to revive with solid signs of growth.
As a result, the Fed now wants to get out of the mortgage business.
This will happen as private capital comes back to fund mortgages. Interest rate increases will be part of the normal process of attracting more private capital. The announcements of the pending tapering indicated the Fed was preparing to move towards withdrawing from the market. Good news but delivered with the risks of the unknown.
A bit of FED background
It helps your understanding to know the Fed and Chairman Ben Bernanke have a dual mandate. They are to seek full employment and control inflation to help the economy prosper. By using various economic and banking tools the Fed financially stimulates the market to encourage economic expansion or withdraws funds to inhibit economic growth and contract the economy.
The mandate requires the Fed to do what it can to stimulate full employment and control inflation. For practical purposes, full employment generally means under 5.5 – 6% unemployment. Controlled inflation means annual price increases running over 2% but not significantly higher.
Given that employment continued for years to remain stubbornly below the guideline and that inflation remained fairly quiet, the Fed has no choice. They kept pumping money into the market. That is the law.
FED will slowly change QE to QT
Once the guidelines are eventually met, change will come but do not expect any sudden moves. Tapering will be slow. The Fed will very slowly ease off the stimulus. That tapering or easing will extend over many months and perhaps over a year later they will finally stop buying.
Then the massive inventory of mortgages on the Fed balance sheet will remain for at least another 5 years after the spending ends. The Fed program will certainly extend for 5 years minimum but could carry on for 10 or more years.
Last time, if you count following WWII as last time, it worked out very well. The fifties and sixties were a very good time! Yes, I was there!
Ride tapering groupthink higher
With the FED beginning QT, groupthink reactions can produce mindless selling triggered by emotional and knee-jerk reactions to concerns as the tapering decade grinds on. Made without any critical thinking, that behavior can produce stock and bond market turmoil. But, any selloff can work in your favor. Times of turmoil and volatility produce excellent buying opportunities.
Whenever there is speculative talk suggesting tapering is imminent, the market quickly shows a negative reaction. Taper talk-related volatility will certainly upset some stomachs. We must keep in mind that the Fed has repeatedly said there are conditions that must be met before any tapering even begins.
Three FED indicators of tapering:
1. Employment numbers
First, employment numbers must improve, trend higher and remain at a higher level to convince the Fed the market is reaching full employment. The Fed will NOT begin tapering as soon as better employment levels are achieved. They must see the stubborn unemployment numbers move down and stay down before considering any tapering action. This has happened.
2. Economic growth
Second, there must be broader signs of economic expansion and higher growth rates. At the time, FED Chairman, Ben Bernanke remained convinced that the QE policy and programs were working. He will keep his foot firmly on the monetary gas pedal until economic results show greater growth. The Gross Domestic Product (GDP) is the report that must trend up further and stabilize at higher levels. He was right, it happened.
As soon as the next Fed Chair, Janet Yellen, took over, she continued QE unabated. The change to a new Chair did not change the approach or policy. Tapering remained to be considered and began only AFTER economic growth results are evident and not merely anticipated. Under the next Chair, Jerome Powell this approach continues.
3. Inflation
Third, the Fed must be convinced the deflation monster has been banished. The Fed will wait to see an inflation trend above 2%. Further, inflation must also produce the desired positive effects of stimulating increased economic activity. Again, tapering will not happen in anticipation of change. Once the change happens and shows concrete signs of continuing, tapering will come into play. This has also been achieved setting the stage for QT.
But wait! There is more!
Market noise
Everything else is market noise. As always the market will produce great amounts of noise and diverse opinions. After all, if we all agreed, we would all be buyers or sellers at the same time depending on what we all thought. We need people on the other side so buyers and sellers can find one another to make the markets function.
To cut through the high level of noise, remember that markets are all about making money. Noise does not matter; earnings and growth of earnings do matter. When earnings are growing, the market goes up; when earnings fall, markets fall. Earnings are now growing.
You can also use a personal economic indicator. When you are spending more money and your friends and neighbors are as well, you have a good basic economic indicator. Such a small indicator is not at all perfect but is a practical basic indicator to consider when thinking about investing.
Waves of groupthink
For months now, and continuing on and on forever, mention or talk of the FED grinding out a tapering decade or QT produces a quick herd reaction from market traders. As is typical in an uptrend, reactions can be expected as fast, hard and negative. No thinking or consideration of any consequences are involved.
Individuals in all groups including economists and analysts can fall into groupthink and stop critically thinking for themselves. That creates an excellent opportunity for us and anyone prepared to do their homework as well as doing their own thinking.
As has already happened time and again, each wave of groupthink selling in anticipation of Fed tapering or QT, presents a buying opportunity. Each time the market has come back and then continues on to a new higher level. That trend up will continue as long as earnings support price increases. Cash flow and earnings matter, the rest is noise.
Also, keep in mind that investors and traders share the market. In effect, investors buy or sell and then sit down to plan their next long-term move. Their action leaves the market. On the other hand, traders are continually active, in effect on their feet seeking any short-term or immediate advantage.
Traders trade and think short term if the FED begins Quantitative Tightening or not. By their very nature, traders, financial service companies, and media all pay a great deal of attention to the short-term market and any slight price fluctuation. The FED grinding out a tapering decade is just one more topic.
However, superior investors have learned to see the trend in the noise without letting the trading racket distract them. In markets, there are always emerging and growing winners to be found. Investors can play the groupthink behavior to our advantage and stay in profit by joining traders when opportunity allows us to buy the dips.
Normal markets
In normal times the Fed does not purchase massive amounts of bonds to support housing. Typically or in normal times, private capital funds the mortgage market through bond purchases.
As the FED backs away from the market by buying less or tapering their purchasing activity, some tricky financial maneuvering could happen. We can expect some bumps as markets adjust to the FED tapering off being the bond behemoth.
Many smaller private buyers have returned to the market to bring in the needed demand. That will produce greater volatility during a period of transition which will take some time.
When the actual tapering happens, I expect the market will chill, however, if economic growth continues, a thaw will come reasonably quickly. But we must remember that quick, on the scale of trillions, is months and years yet. Once tapering becomes accepted as the new normal we will return to a rising market, as long as earnings grow.
The Fed has emphasized the QE program would be slowly tapered. The FED will grind it out for a decade. I anticipate the full transition will take multiple more years yet.
Tapering groupthink costs investors!
Tapering the effect of years of massive stimulation that pulled the economy back from the financial abyss will continue for more years. Groupthink refers to common thinking and reactions to reducing the QE program. But tapering involves the slow reversal of the central bank QE policy. That takes years.
Tapering groupthink can stop investors from understanding or managing the risks of tapering.
That massive stimulus program pumped colossal amounts of money into the economy. It worked because it prevented an economic depression. Now there is fear, or at least talk of it, that easing off or raising interest rates could take money out of pockets and markets. Tapering will definitely and significantly affect markets and quite possibly your investments. Tapering refers to the anticipated reduction, lessening or easing of the economic stimulus.
The economic stimulus is the vast amount of money the U.S. Government pumps into the American bond market each month to spur the economy. That stimulus indirectly supports all financial markets.
Notice of change to a new era
When the FED first talked of tapering or beginning QT it was an unwelcome reality check! The equity party had been going along just fine. Prices were rising and everybody was making money. What could possibly go wrong!? Then the guy with the key to the wine cellar starts talking about taking the punch bowl away! Careful of your reaction, tapering group-think may cost you!
Filling in some FED, tapering, and QE background
Equity markets around the world have greatly benefited from the massive stimulus provided by the U.S. Federal Reserve Bank. Their gargantuan bond-buying program, the QE program, supported the mortgage market. In most cases, central banks around the world had variations or QE applied to their markets. None had the influence or were close to the scale of the U.S. stimulus plan but were important in each market.
In essence, the Fed used their central bank money-creating power to issue $85 billion in credit each month. The credit was immediately directed to the bond market to purchase mortgage-backed securities.
Housing back from the brink
The ongoing purchase of mortgage-backed securities puts the money to work supporting housing. Mortgage-backed securities provide funding for the mortgage market. Funding mortgages let people buy houses.
The 2008 financial crisis immediately cascaded into and stopped the entire mortgage market. No refinancing or new mortgages were available. At any price! Without action, house sales would stop and the economy would plunge into a depression-era freeze.
The U.S. Fed stepped in and created the QE program. That effectively funds millions of mortgages. As a result, a stalled house construction industry restarted, existing houses could again be refinanced and people could buy and sell houses.
When the housing market works, the economy works. The American economy moved back from the brink of collapse. Then over time a positive, although slow improvement began to take hold. As the American market improved the positive effects flowed to markets around the world.
But, here comes the but!
The immediate financial and economic crisis was averted, but…you know there always has to be a but! Money creation can’t continue unabated forever. Somebody has to pay the bills and balance the books. To work properly, in normal circumstances, capital markets fund economic development and growth.
Governments can create money and stimulate the economy, a region, or an industry, for a period of time. Providing the stimulus produces positive economic results.
On balance, or on the other side of the money creation equation, are equal amounts of debt or inflation. Either, or both can spell big trouble for a society or an economy.
When capital markets fail, as in 2008, governments can step in as a last resort. However, as sure as the law of gravity affects us all, nations and governments are subject to economic laws. Stimulus programs have to function within finite economic limits.
Good governments accept economic limits
Responsible governments let economic and job growth set those limits. In theory, governments can create money for economic stimulus. Providing the money gets used to spur significant growth, within a reasonable time. That works especially well when it is a production that gets funded rather than consumption.
New productive economic activity and job growth promise to generate more contributing taxpayers. New taxes and growing economic activity returns significantly more than enough revenue to cover the initial cost of the stimulus. In such a scenario everybody wins!
However, when jobs or economic growth does not happen or is insufficient, trouble looms. The money creation process produces national debt and often massive inflation. That is a risk of funding consumption rather than production. Then a bad economic situation can become much worse yet.
For example, witness the growing economic mess during the past decade and 50% inflation in Argentina as an example of what not to do. Look what a few years of economic and financial stupidity have done to Venezuela! Government imbeciles have driven them from the highest living standards to poverty.
QE ends as the economy responds
Even the most successful stimulus programs must come to an end. For anyone taking a longer view on the economy, the sooner the better. All market players know the day to end QE must come. But as we humans often do, later always seems like the better time.
The instigator, then-Fed Chairman Ben Bernanke, was well aware of the need to end QE. The economy continued to improve. The brilliant Fed Chairman knew we needed to be reminded that things are going to change. QE was ending and QT was on the agenda.
So he gave notice. He clearly indicated the QE program would ease or taper. He wanted the market-ready in advance so there is ample time to adjust. He reiterated that the change would be gradual, thus his reference to tapering support rather than a rapid, complete, or immediate stop.
Further, the tapering only began after the Fed was satisfied the economic improvements were in place and could be expected to continue. That is important. He said in place and expected to continue. This was an advanced notice of what would be expected to come but not imminent.
The stock market responds to billions
Naturally, the market did what it always does – overreact! Like spoiled children reminded that bedtime was coming there was a bit of a hissy fit! Tapering groupthink in action! That is a risk but also an opportunity when we know and understand what is taking place.
At the time the market immediately got hit by sharply falling prices as some anxious sorts ran for the exits. Think before doing is a good idea, especially for investors, but at times those that do, well, they just do. They sold mindlessly and prices dropped. Thank you very much!
Fast forward and the markets fully recovered and moved higher than ever! So far no QE tapering damage to report. There never was any. Know it, understanding it, and play it. Tapering will continue to put opportunities in front of us for years to come.
Question Answered!
The lesson discusses how QT is the FED program to unwind the massive QE financial injection used to overcome the 2008 financial crisis. The QT program removes the ocean of FED funding that saved the market but now becomes a lingering economic threat. Understanding QE and QT programs give investors deeper knowledge of the market and how the economy works.
Lesson takeaways:
FED begins Quantitative Tightening to grind out a tapering decade
After a decade of QE, for the next act, to grind out a tapering decade, the FED begins QT. The QT program unwinds the effects of the previous decade of QE. That program saved the day following the 2008 financial crisis by pouring an ocean of stimulus funding into the economy. As a result, those trillions of dollars ballooned the FED balance sheet. While markets and the economy recovered and prosper, the once welcome massive investment then looms as a threat to prosperity.
- QT challenges investors
- To understand QT and tapering
- To manage QT, tapering and groupthink risks
- To profit from tapering and groupthink
- Tapering and QT will be a significant economic factor for many years
- QE stimulus turned to housing
- FED mandated to control inflation and encourage employment
- Stimulus and tapering are long term slow-acting forces
- Tapering presents risks and opportunities to markets and investors
- QE groupthink looms as a risk for investors following the crowd
- Fear of markets falling as FED easing looms
- Fear the party is over as the FED removes stimulus
- U.S. housing returned from the brink of collapse
- Private capital returned to the mortgage bond market
- The huge FED balance sheet must undergo contraction
- FED tapering and QT will happen after:
- Employment numbers trend to full employment
- Economic growth shows expansion
- Inflation trend to 2% and shows stability
- Market noise and groupthink and normal market offer opportunities
- Stock market growth continues under a steady FED
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Investors, The FED And Central Banks, lesson links:
Central bank creation and role explained Lesson 1
FED billions bounced depression Lesson 2
FED begins Quantitative Tightening Lesson 3
FED market direction signals Lesson 4
Most powerful civil servant Lesson 5
Trillions stimulated Japanese economy Lesson 6
Central Banks of Canada, UK and Europe Lesson 7
Central bank lid and base setting Lesson 8
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FED market direction signals
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