Fed may scale down QE3 by the end of the year

The Fed left its policy unchanged for June. Nonetheless, in the press conference that followed Chairman of the Fed, Ben Bernanke, said the Fed may start to scale back its current $85 billion a month of long term securities by the end of 2013 if economic conditions will continue to improve. Moreover, Fed may end its asset purchase program by the middle of 2014.


FOMC members also estimate economic conditions are improving including labor market, despite the elevated rate of unemployment, which is currently at 7.5%. Bernanke said the Fed expects the rate of unemployment will drop to the 7% mark by early to mid 2014. The rate of inflation is below the Fed’s mark of 2%, but this could start to pick up in the long term.

The market soon reacted to this news as the Euro/USD sharply fell; the USD/YEN rose. Moreover, the potential tapering of QE3 by the end of 2013 sent precious metals including gold and silver prices down by 0.59% and 1.28%, respectively. If the Fed will taper its asset purchase program in the coming months, this will lower the potential risk of inflation and will bring further down gold and silver prices.

The Fed continues to point a finger at the government for its lack of involvement in the jump-starting the U.S economy. The IMF also criticized the budget cut implemented by U.S policymakers earlier this year.

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