Tapering Time? Not Quite


Dennis Lockhart, president of the Atlanta Fed Bank is concerned about the financial markets. He thinks the the markets misunderstood what Bernanke said last week at the FOMC meeting. “Tapering” may be a long ways away.

“I don’t want to be too cute about a serious matter, but to make an analogy, it seems to me [Bernanke] said we’ll use the patch, and use it flexibly, and some in the markets reacted as if he said ‘cold turkey’,” Lockhart said Marietta, Ga on Thursday. (MarketWatch-WSJ)

Bernanke gave no absolutes for slowing down stimulus efforts. There was no definite “when” or “at what pace”. Yet, the U.S. Dollar strengthened and the DOW rose.

Why did the markets misunderstand Bernanke?

Bernanke used a lot of words. Hawkish words and dovish words. As can be expected, the markets ate up the hawkish, more exciting, more volatile words.

In the post-FOMC Press Conference on June 19th, Mr. Bernanke did indicate that the Fed is expected to begin tapering later this year and possibly end purchases altogether in 2014.

“The committee currently anticipates that it would be appropriate to moderate the 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.” – Federal Reserve Chairman Ben Bernanke

What did Mr. Bernanke say that the markets ignored?

In response to a question at the FOMC Press Conference, Mr. Bernanke made it clear, referring to QE policy that “…if things are worse, we will do more. If things are better, we will do less”.

He actually said: “if things are worse, we will do more”.!! There you have it folks, it’s safe to say that the general public has absolutely no clue on when the Fed’s quantitative easing efforts will taper – it’s still fun to talk about though. 🙂 That does not lower the significance of the matter, because as we saw last week, a couple comments from the Federal Reserve and markets move, that means billions+ dollars move.

In the Forex market the U.S. Dollar has shown significant strength since last week. The momentum will likely ease, to see a pull-back in the USD bulls.

The excitement and anticipation of a change in the QE efforts of the Fed will likely not hold sustained influence in the market until we actually SEE tapering happen. When will it happen?

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