On Wednesday the Federal Reserve announced it would taper its asset purchases by another $10 billion starting next month. Fed monthly asset purchases will by then have been reduced from $85 billion a month in December last year to “just” $15 billion from October, a reduction of 82.4%.
This Fed taper is greatly reducing the overall monetary stimuli. The Â U.S. stock market is now therefore rapidly running out of the monetary rocket fuel that contributed to its rather smooth, and ever continuing, surge since March 2009.
Adding the increases in Fed assets and theÂ Austrian True Money Supply, the year on year growth rate in the total monetary stimuli has now dropped from 15.8% in October last year to the current 11.2%. The growth rate will continue to drop fast going forward unless the Fed reverses its current policy course.
As a result of the Fed taper, the percentage point change in the total monetary stimuli growth rate is now currently 2.7 percentage points lower than at the same stage last year (11.2% vs 13.9%). Furthermore, the growth rate has now dropped for nine consecutive weeks, hardly good news for the stock market.