Phoebe Venable: Tapering signals economic strength

Since the financial crisis five years ago, the Fed has created several iterations of quantitative easing as a way to stimulate the economy. In the current iteration, known as QE4, the Federal Reserve has been systematically investing $85 billion monthly into the economy by purchasing government bonds and mortgage securities. We’ve always known that this economic life support would have to end at some point, and the Fed’s outgoing chairman, Ben Bernanke, has eased us into the idea of “tapering” this amount as our economy strengthens.

After months of improving economic reports, the Fed officially announced Wednesday that it will begin tapering, or reducing the monthly amount that it puts into the program. The announcement indicates the Fed believes its patient, the U.S. economy, is ready to be weaned off the life support of quantitative easing. Instead of $85 billion of monthly purchases, our government will now purchase only $75 billion ($35 billion toward mortgage securities and $40 billion into treasury bonds). The Fed has suggested a plan to reduce the monthly amount through next year, ending the program by 2015. But what does this mean for the average investor?

Ben Bernanke’s Christmas gifts

This week’s Fed announcement removed the uncertainty about when the long-talked-about tapering will begin. This is a gift for all investors, because uncertainty makes all investment decisions so difficult.

Now, as the Fed decreases the monthly support, we can acknowledge that our economy has found its legs and regained some forward momentum. In summation, tapering is a sure sign that our economy is improving. The tapering news spread quickly, and the stock market rallied — establishing immediate investor support for Benanke’s decision.

Unfortunately, there are always two sides to the coin. As tapering infers a strength in the dollar, gold investors will suffer. In response to the news, gold dipped below $1,200 an ounce for the first time in five months. Gold is set to be scored as a loss in 2013 (down 28 percent this year), its first yearly loss in more than 13 years.

Progress is progress,

but not a victory

While the economy appears to be victorious through tapering, we still have other issues to keep in mind. Our national deficit isn’t likely to decline anytime soon, and this is a problem we will have to deal with eventually. Secondly, the U.S. is still experiencing pronounced levels of unemployment. Still, it seems safe to keep a merry outlook on the short-term health of the economy. ’Tis the season for investors as we expect rising markets to bring us well into 2014.

Phoebe Venable, chartered financial analyst, is President & COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.