The time has finally come for the Fed to start tapering in Jan 2014 after so many rounds of delay. The Fed has said  that it will cut the $85 billion purchase of mortgage purchase and treasuries by $5 billion each. However, the Fed has that it will hold the Fed funds rate low for a long time, even after the unemployment rate falls below 6.5%.

What the above means that the long term interest rates are likely to rise because of the tapering, but the short term interest rates should continue to stay low. The interest rates will definitely have an effect on borrowing costs, but the impact is limited as the tapering would be done in a gradual manner to allow the market to adjust towards it. It is also reflected in the 30 year US treasury rate which didn’t move much after the announcement, suggesting that ...