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No Summers, no tapering? Not so fast

Larry Summers has withdrawn from the race for chairman of the U.S. Federal Reserve, and investors are loving it: Equity and bond markets have rallied in early trading on Monday, reflecting a perceived shift in Fed policy expectations. But the market could be getting ahead of itself here.

Right now, the Fed is buying $85-billion (U.S.) worth of Treasury bonds and mortgage-backed securities each month, using a program known as quantitative easing or QE, in an effort to stimulate the economy. Certainly, the stock market has benefited tremendously from QE – but the Fed has signalled that this stimulus will be wound down, and many observers believe it will announce the start of tapering this week.