The US Federal Open Market Committee (FOMC) surprised the market in December with its announcement to begin scaling back the value of its monthly purchases of Treasury and Mortgage-Backed Securities (MBS). The decision was reached based on the FOMC’s view of improving economic conditions in the US, particularly employment conditions. Beginning in January 2014, the FOMC will add to its holdings of MBS at a pace of $35 billion rather than $40 billion per month and add to its holdings of longer-term Treasury securities at a pace of $40 billion rather than $45 billion per month. Furthermore, the US Federal Reserve has continued to reiterate that future changes to its securities purchasing program will still be dependent on economic data and that tapering does not equate to a tightening of monetary policy as part of its forward guidance to markets.
