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The U.S. Federal Reserve surprised the markets by announcing its decision to postpone reducing the purchase of Treasury and agency mortgage-back securities. The Board of Governors said the central bank will continue buying $45-billion (U.S.) in Treasury bonds and $40-billion in agency mortgage-backed securities every month "until the outlook for the labor market has improved substantially in a context of price stability."
But it is inevitable that the Fed will start winding down its purchase program when labour market conditions improve and inflation expectations are within tolerance. How will equities and other risky assets be affected? Understanding the impact of tapering across asset classes and market sectors may enable investors to take advantage of the Fed's reprieve and position their portfolios advantageously.
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