Since the velocity of money is still decreasing, the Fed can hardly decrease its treasuries purchase or the velocity will bring deflationary pressure back.

This means that tapering will be very tiny and almost imperceptible. The small level of tapering will be a "communication tool" to show that the Fed is in control. Bernanke will want to show that he started to wind down before he leaves, but will let his successor with the hard decision to manage the mess.

http://research.stlouisfed.org/fred2/series/M2V

"The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy."


Pascal

Name: Velocity.gif Views: 151 Size: 23.4 KB