The Federal Reserve wasn’t supposed to start tapering its quantitative easing program until next year. That was the reigning theory just weeks ago. With Janet Yellen set to take the chair of the central bank, few thought that Ben Bernanke would lead a charge to decrease the QE program. Now it appears those theories were wrong.

A slew of positive, although not euphoric, economic data has helped to spur theories of a December taper. The economy of the United States looks fragile in the fourth quarter, but it is growing. Unemployment is down,  the retail sector is looking good and consumers are relatively positive about the future of the economy. That leads the Federal Reserve to consider a taper more strongly, and it has shaken the markets in recent days.

Federal Reserve Quake

On Wednesday rumors that the Federal Reserve seemed set to taper the QE program drove the major indices down. If the Federal Reserve does choose to reduce the magnitude of the bond buying program, the stock market is likely to suffer as money flows back into the long neglected fixed income market.

Early trading on Thursday lead global equities to a one-month low. International investors are nervous about the future of Federal Reserve policy, and it’s showing in the daily loses of the stock market. There may be a relatively low chance of the central bank reducing QE according to some analysts, but any risks at all are worth pricing in.

A taper before the end of the year would shift the economy from under the strategies of many investors. If there is one thing that those following the market should be doing it’s protecting themselves from the whims of America’s central bank. The institutions power is far in advance of almost any other on the planet. Only those with the ability to declare war could have a more substantial effect on the economy.

Federal Reserve Dominance

Federal Reserve policy is perhaps the defining factor in the US economy. The quantitative easing program has dominated the American economy, and the financial markets in particular, and it’s not going away any time soon. The question is whether the central bank will choose to tone down the bond buying. Rumors suggest that they may do so as soon as next week.

The Federal Reserve’s power is controversial, and investors will all have their own opinions about the bank’s policies over the last five years. One thing is certain, however. The bank should not be ignored. Ben Bernanke is the most important man in most rooms. Whether you’re buying gold to balance against inflation or selling stocks to escape taper pressure, you should be watching him with bated breath.