Fed's Taper Decision: What's the Glide Path?

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Dec. 18 (Bloomberg) -- BlackRock Chief Investment Strategist for Fixed Income Jeffrey Rosenberg, Credit Suisse Director of U.S. Rate Strategy Ira Jersey and Bloomberg's Michael McKee discusses market reaction to the Fed's decision to cut bond purchases. They speak on Bloomberg Television's "Money Moves." (Source: Bloomberg)

.45. jeff rosenberg, why do i see the bond market not moving and the dow jones industrial average moving?

I think it is a little bit more expected out of bond market participants.

You look at all of the surveys and where folks had their expectations.

The bond market was about evenly split between dissembler -- december taper and january taper.

A lot of the expectation was priced in, in the moves in interest rates leading up to today's action.

It is a little less of a surprise from the fixed income market side.

Half of us were thinking they may have waited until january.

But the debate was either urged december or january.

-- either december or january.

Do they just keep doing these pretend tapers along the way?

Or do they rams them up over time?

-- ramp them up over time?

Today they started with about 5 billion each on mortgages and treasuries.

That was a second part of the debate, would you get a very small taper, and $5 billion is on the smallish side.

A lot of the debate will be whether they ramp it up.

What is clear is the expectation -- and the fed is going to reiterate this -- it is all conditional on the path of the economy.

The environment we have been in for the past four to six weeks, economic data has consistently surprised to the upside.

If you have that kind of consistent performance along the lines of what they are forecasting in terms of 2.8 up to 3.2 type of economic activity.

They will be out of qb by the end of 2015 as long as the at on me -- out of qb by the end of 2015 as long as the economy stays on this path.

Michael mckee, i want you to frame the right question to ira jersey about the makeup of this taper.

Most of it is a five letter word that sounds like a four letter word, because we are aren't out by it.

I suspect the one thing they did was by starting small, they took the pressure off of january's meeting, which is janet yellen's first meeting possibly as chair.

They may not have to go and do anything into the meeting in march.

They will continue to buy mbs and newly issued agency mbs.

Which is what they have been doing, and they will not change the way they are buying treasuries.

No real impact.

Not in the bond market.

It is a little time of incremental supply over the next six weeks that will come into both of those markets.

In the case of the mortgage market, the fed was buying more than 100% of supply.

It might actually ease some of the pressures that have appeared in liquidity in that market.

But they are still buying a lot of bonds.

In 2014, they will still be buying hundreds of billions of dollars worth of mortgages and treasuries.

Critically, jeff rosenberg, is that a distortion to the market?

Will we still be distorted in our financial markets well into 2014? there is still a tremendous amount of support and a tremendous amount of distortion by the fed.

What is key -- today is a very important day in that perhaps -- and i don't want to overestimate this.

But we might begin to see the possibility where the fed is signaling its confidence in the economy and that confident in the economy is helping to boost financial confidence and therefore financial assets.

So far, has been the failure of financial assets in the economy and they have needed the distortion of quantitative easing to hold up asset prices.

Today, a little bit of a reverse of that.

It is too early to see if that is the trend for 2014, but certainly a major change in the

This text has been automatically generated. It may not be 100% accurate.


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