Federal Reserve chairman Ben Bernanke. Photo by Reuters.
All eyes will be on the United States Federal Reserve as
it makes its early morning announcement on whether or not it
intends tapering its substantial monthly support to financial
Most market participants expect the Fed to cut its $US85
billion ($NZ103 billion) in monthly bond purchases, otherwise
known as quantitative easing, by $US10 billion to $US15
billion, although some believe the move may come later this
Craigs Investment Partners broker Chris Timms said the
central bank's stimulus was credited with helping the
Standard & Poor's 500 index's 150% rebound from its March
The Dow Jones Industrial Average was a only a few points shy
from its August 2 record and the technology rich Nasdaq was
at an all-time high.
The NZX-50 has this week reached all-time highs, largely due
to expectations around the Fed's actions.
Mr Timms said anything less than a $US20 billion a month in
tapering would be seen as positive by the markets.
The markets had been supported by the artificial stimulus of
the Fed buying bonds. If it started tapering its support, it
would indicate the US economy was growing, companies were
growing profits and the economy was starting to independently
''It is an interesting balance for the Fed. It wants economic
growth, it wants to support the economy and it doesn't want
to turn the money tap off too much.''
Mr Timms warned against a hasty reaction as there were so
many moving parts in play.
As well as the tapering, the Fed might chose to alter its
threshold for tightening, perhaps by lowering the trigger
level on unemployment from the current 6.5%.
It would also publish its first economic forecasts for 2016
and the stronger the picture, the harder it would be to
convince markets any future rise in interest rates would only
be slow and measured.
''The Fed has already had trouble convincing the market it
intends to keep rates near zero out to 2015 - no matter how
much the economy improves.''
The decision and economic projections are out at 6am today
while Fed Chairman Ben Bernanke starts his press conference
30 minutes later. Often, markets can react violently to the
former, then completely reverse course depending on what Mr
Mr Timms expects Mr Bernanke's speech to be ''dovish'' in
tone, indicating the Fed is unlikely to take aggressive