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Why Businesses Shouldn’t Fear a Market Tantrum

Even as the Fed considers tapering asset purchases and raising interest rates, its improved communications make a 2013-like market response unlikely.

By Robert Santella | August 19, 2021 at 12:33 PM

The U.S. Federal Reserve is poised to make two decisions that may drastically impact the outlook for corporate finance: when to raise interest rates and when to curtail bond purchases. Treasury and finance professionals assessing the potential impact of these moves need to consider several key factors in their analysis.

For context, the U.S. economy has rebounded faster than expected from the early stages of the coronavirus pandemic, in no small part because of the Fed’s swift and extraordinary support. Since July 2020, the Fed’s quantitative easing (QE) program has involved purchasing approximately $120 billion of bonds each month in order to support the market. The Fed also cut the federal funds rate to nearly zero at the onset of the pandemic in March 2020.

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