Cramer on Speculation Fed May Taper Asset Buying
Investors continued to wonder when the U.S. Federal Reserve will begin to wind down its asset purchase program, creating a rather choppy session Monday. The Dow Jones Industrial Average rallied 109.67 points to end at 15,179.85, logging its fifth-consecutive triple-digit move higher while the Nasdaq and S&P 500 index also closed in the green.
Stocks briefly took a leg lower, though, as investors reacted a "Financial Times" article, released around 2pm ET, which stated that Fed Chairman Ben Bernanke is likely to signal that the central bank is "close to tapering down" its $85 billion-a-month in asset purchases during the highly-anticipated press conference on Wednesday.
The Fed's one power is to create money out of thin air and it's currently using that power. In September, it launched a third round of quantitative easing, in which it will buy $40 billion of mortgage-backed securities per month to try to foster a burgeoning recovery in the real estate market. Its purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions — primarily in unemployment — improve. To pay for its bond-buying program, the Fed is just printing more money.
To "Mad Money" host Jim Cramer, there certainly are signs the economy has improved, but he thinks the Fed still has a lot of work to do. In turn, he thinks the Fed is likely to end the program someday, but to avert another financial collapse, he suggested the program's end is probably not near.
"I believe this week's Fed meeting will be just one more big bad event where there's lots of volatility going in, but once the meeting ends there will be a sigh of relief and we'll be close enough to the end of the quarter that I expect the downside to be muted," Cramer said. "And while it's right to stay vigilant, of course, this week will not define the future as much as we might expect it to."
—CNBC.com contributed to this report
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