The Federal Reserve finally began its long-awaited reduction of bond-buying activity in its most recent meeting, setting the stage for an eventual end to quantitative easing. But there's still one key decision that the Fed hasn't yet made that could define the direction of the stock market for years to come.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the crucial element of Fed policy that hasn't yet been determined: the speed of future tapering. Dan notes that if the Fed keeps cutting by $10 billion per month at each of its meetings during 2014, quantitative easing will end before the year is out. But if there are pauses, it could push into 2015. Dan goes through the ramifications that could have, first focusing on bond investments Vanguard Total Bond (NYSEMKT:BND) and PIMCO Total Return (NYSEMKT:BOND), and then turning to financial stocks JPMorgan Chase (NYSE:JPM) and Travelers (NYSE:TRV). Dan concludes that the January meeting should give big clues about which way the Fed will move in the future.
Fool contributor Dan Caplinger owns warrants on JPMorgan Chase. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.