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FOMC tapers, but continues to eye soft inflation data

  • There's little surprise as the Fed continues to taper its asset purchases and says future moves will be data dependent.
  • As for ZIRP, the FOMC expects it will remain in place "well past the time" when the headline UE rate falls below 6.5%, "especially if projected inflation continues to run below the Committee's 2 percent longer-run goal." Eurodollar futures are pricing in about 100 basis points of tightening between now and December 2015.
  • The vote in favor of today's action was unanimous.
  • Equities slip to session lows in wake of the news, the Dow (DIA -1%), S&P 500 (SPY -0.8%), and Nasdaq 100 (QQQ -0.9%), and Treasury yields continue five basis points lower on the session, the 10-year at 2.71%. TLT +0.4%.
Comments (16)
  • tom_t
    , contributor
    Comments (272) | Send Message
     
    Why is the market down? Didn't the Fed do exactly as most people expected? Or is this just a classic "sell the news" situation?
    29 Jan, 02:20 PM Reply Like
  • june1234
    , contributor
    Comments (2628) | Send Message
     
    Nothing classic about $70 trillion worth of cheap, leveraged US issued bond debt out there. a model emerging markets are very familiar with.
    29 Jan, 02:29 PM Reply Like
  • Gosho
    , contributor
    Comments (57) | Send Message
     
    What I've understood in my 4 years of trading is - don't search for logic in the market..Most of the time you receive good news and the sell-off starts, don't try to understand it.I've given up already, just follow the herd.
    29 Jan, 02:31 PM Reply Like
  • Ohrama
    , contributor
    Comments (514) | Send Message
     
    Just a 13.33% (10/75) reduction in the speed of our printing press, the guys (and the gals?) in the wall street run to the exit. I wonder how things would be if the printing stops completely (assuming it can)!
    29 Jan, 02:39 PM Reply Like
  • RS055
    , contributor
    Comments (2510) | Send Message
     
    "The Fed repeated its message that they will likely keep rates at that low level "well past" the unemployment rate reaching 6.5%."
    Brilliant statement - devoid of any information content whatsoever. So they have basically said that 6.5% is a meaningless number - how about the other numbers on the real number line?
    29 Jan, 02:55 PM Reply Like
  • cash
    , contributor
    Comments (464) | Send Message
     
    Good observation. Given the infinitely many rational & irrational numbers on the real line they have a lot of room to run the QE - inf
    29 Jan, 03:45 PM Reply Like
  • kmi
    , contributor
    Comments (4030) | Send Message
     
    Deflationary pressure is scary. It's still out there, and employment is looking like it has less relevance to inflation and economic growth than previously expected.

     

    It may also be a tacit nod to the fact that unemployment percentage isn't reflecting those exiting the workforce.
    29 Jan, 04:56 PM Reply Like
  • RS055
    , contributor
    Comments (2510) | Send Message
     
    The Fed is an intellectually bankrupt, politically captured institution. All this social engineering through "communications policy" smells badly like something out of the Soviet era .
    They dont have any models that work, their job is simply to keep the financial sector from imploding. Have they succeeded? Best not to take too many victory laps on this - still too early to tell.
    29 Jan, 03:02 PM Reply Like
  • Darren McCammon
    , contributor
    Comments (1173) | Send Message
     
    The Bernanke put has been removed. Fed propped up the market via bond buying and now they aren't as much, so people are getting cautious then scared. I suspect the Fed will continue its taper (because the taper is less effective) but replace it with some other form of stimulus: moving targets, talking down rates, eliminating interest paid on deposits at the Fed, etc. Alternately, if we see a big panic, government may actually get the gumption to do some stimulus of it's own: hopefully more new dealish / productive than just handing out money via unemployment extensions, workman's compensation checks, subsidized "fill in the blank", etc. like they have been.
    29 Jan, 03:08 PM Reply Like
  • RS055
    , contributor
    Comments (2510) | Send Message
     
    I think you are right. This QE thing has outlived its utility as a psychological prop ( which is mostly what it was). If the market gives up the bulk of last years sugar driven gains - in a month or two, then they may have to come up with some new scheme. The problem is , I dont know how much credibility they have. Of course they could do what Japan, Taiwan and other countries have done in the past - simply instruct their TBTF banks to directly buy stocks - they may need congressional approval for this, but how hard would that be in the midst of a stock market collapse.
    29 Jan, 03:18 PM Reply Like
  • susanprieve
    , contributor
    Comments (5) | Send Message
     
    Haven't you guys ever heard of capitalism, or a free market economy? Good heavens! The Fed- that corrupt institution that has nothing to do with anything governmental or bank-related- needs to go away. Enough intervention, already! Pigs get slaughtered, or have you forgotten that?
    29 Jan, 04:23 PM Reply Like
  • nooseah
    , contributor
    Comments (470) | Send Message
     
    Tom_t. I fail to understand why you're confused at market weakness. The market doesn't like what's going on in EM - if there's a crisis, how big will it be and what will its effects be? No point being limit long equities here. Time to trim right back - unless you enjoy being run over.
    29 Jan, 05:16 PM Reply Like
  • arthurbuchner1
    , contributor
    Comments (43) | Send Message
     
    What i really love is the concept that "em borrowed too much money " ,they must pay for that .I assume this is worse than just printing billions of dollars to buy back you own debt and fund deficits.
    29 Jan, 06:24 PM Reply Like
  • KURTKAMM
    , contributor
    Comments (46) | Send Message
     
    Hey guys - the real threat is deflation/disinflation. That's what the Fed is worried about (and so am I) and that's what they are trying to prevent. But they can't really talk about it, because that would scare people even more. So they talk about keeping the inflation rate UP.

     

    I'm glad someone is working on it. If the free market brings us a decade of deflation, everyone will be crying for central bank intervention.
    29 Jan, 08:00 PM Reply Like
  • snoopy44
    , contributor
    Comments (840) | Send Message
     
    Yeah it looks like the Fed wants to revisit 1997s Asian currency crisis. That went over real big didn't it? As for those people who say "drop dead" to EM currencies, I would caution to be careful what you wish for. We live in a very "interconnected" world and letting the EMs crash n burn might be fun but it is not exactly a prescription for global economic growth. And btw, we are nowhere near recovered from the 2007-08 credit crisis to be able to handle tapering. Hold on to your hats. This is going to get real ugly. Real fast.
    29 Jan, 08:08 PM Reply Like
  • Hendershott
    , contributor
    Comments (1561) | Send Message
     
    The currencies of Venezuela, Turkey, Argentina, the Ukraine, Egypt, Russia etc. are mostly dropping for reasons other than tapering. Basically it has to do with corruption, mismanagement, limited prospects even with good management, expensive energy and a generally cool global economic environment. Why would anyone invest in Turkey with Erdogan in power? or Venezuela or Argentina? or Russia? One thing we learned in 97 was that these currencies have limited effects on the US economy. Even less now with the shale revolution and our supply of cheap NG. Selling off the Korean Won was dumb and won't last. The stock market needed to back off anyway. The pause that refreshes.
    29 Jan, 08:42 PM Reply Like
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