So, Federal Reserve Chairman Ben Bernanke apparently threw a cat amongst the pigeons earlier today when he made the following comments during the press conference that followed the policy committee’s meeting:
The committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year, and if the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.
Not surprisingly, the price of just about everything except for the U.S. dollar fell.
The S&P500 dropped 1.4 percent and Treasuries fell, the yield on the benchmark 10-year note rising to 2.36 percent, its highest level in 15 months. Though this “signaling of tapering” their $85 billion per month money printing effort was largely expected, there were clearly some traders who were waiting for confirmation from the Fed Chief himself.
Given that the surge in stocks and bonds has been universally attributed to Fed largess, it should be interesting to see what happens in the days ahead. In theory, market participants should shift their focus to an improving U.S. economy and a better labor market in justifying current asset prices and the gradual reduction in Fed bond buying should be a non-event.
That’s the way they’d draw it up in the economics text books, that is, if they have any textbooks on quantitative easing.
Little changed in the Fed’s policy statement as shown below, the only surprise being that St. Louis Fed President James Bullard dissented, indicating that the Fed should be prepared to provide more stimulus as long as inflation is very low.