The recently released Fed minutes contain the following information on their plans to fully complete the so-called taper:
[P]articipants generally agreed that if incoming information continued to support its expectation of improvement in labor market conditions and a return of inflation toward its longer-run objective, it would be appropriate to complete asset purchases with a $15 billion reduction in the pace of purchases in order to avoid having the small, remaining level of purchases receive undue focus among investors. If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting.
Right now (July) the Fed is buying $35 billion of new bonds per month. (In other words, it is reinvesting the proceeds to maintain its holdings as existing Treasury and mortgage-backed securities mature, and then on top of that, the Fed is buying an additional $35 billion per month–$20 billion in Treasuries and $15 billion in MBS, or at least that was the official target; they bought $1 billion more in Treasuries last month and so are only buying $19 billion this month.) The current plan is that–so long as the economy doesn’t crash–the Fed will taper to $25 billion in August, then $15 billion in September, and then wipe out the remaining $15 billion in October. At that point, the current plan is that the Fed would hold pat, reinvesting the proceeds from maturing securities to maintain a fixed total of assets.
Just to remind everyone, here’s a chart showing the behavior of the S&P500 versus the monetary base (which has exploded since late 2008 because of the Fed’s policies):
As the chart shows, it used to be the case that the stock market bounced around with little relation to the Fed’s asset purchases. But since early 2009 and the introduction of “quantitative easing” programs, the stock market and the Fed’s bond buying have moved in virtual lockstep.
Let me ask you this: Do you think the S&P should be hitting all-time highs because of how great the underlying economic fundamentals have been the last few years?