What's going on?

The US Federal Reserve (the Fed) indicated on Friday that it�ll start tapering its bond-buying program before the end of the year � just like investors expected.

What does this mean?

Last year, the Fed slashed interest rates to near-zero and started buying up $120 billion worth of bonds a month to help keep the pandemic-driven economic disaster at bay. And it worked: that flood of cheap money helped the economy stay on its feet, as well as prop up markets over the past year. But investors have been expecting the Fed to eventually�announce the end of the bond-buying part of the program, and they figured this latest update from the central bank would be The One. They weren�t wrong: the Fed said the strong economic rebound means it can start reducing its monthly bond purchases before the end of the year.

Why should I care?

The bigger picture: So when�s the rate hike?
The Fed was quick to point out that a winding down of bond purchases shouldn�t be interpreted as a sign that an interest rate hike is on the way (tweet this). It won�t do that, it says, until it�s confident the labor market is strong enough to hold its own. But with 6 million fewer jobs now than there were before the pandemic, the central bank reckons that could take until next year � if not until 2023.

For markets: Meet TINA.
One of the reasons the stock market has benefited from the Fed�s bond-buying program is that there is no alternative � known affectionately as �TINA�. In other words, the program�s driven bond yields so low that stocks are a much better way for investors to make a return. But as the Fed reduces the amount of bonds it buys, there�ll be less demand for them overall (all else equal), which should drive down prices and push up yields. And when there is an alternative, sky-high stocks might start to look a whole lot less appealing.