The Fed Did Their Thing - Now What?
Much of the market anxiety lately surrounded a 'will they or won't they' - the Fed and their cutting back on their bond purchases. On Wednesday we found out exactly what they intend to do going forward, and they did it with an exclamation point! It was a bold statement and very dovish economic forward guidance. The Committee was very clear about the future prospects for the economy, a bright outlook and re-affirmation that the QE program was indeed working. Chairman Bernanke entertained the team of economists and reporters in likely his last press conference of his term (Janet Yellen will likely be confirmed to succeed him on Feb 1 of next year).
The fear and worry (really uncertainty) was evident in the VIX. As I mentioned here early on Wed in a Realmoney.com article it was really misplaced and not timely. The Fed has been telling us all along how to proceed, the playbook was wide open. The key was watching the data -- the same thing they told us to do -- and figure it out. As many were skeptical about a taper the consensus thinking was more confused and ultimately worried. The VIX had climbed nearly every day for three straight weeks, though not a big surge in any one day. But once that news was released so was the stress and anxiety, the fear of the unknown was removed and market players could get back to business. The VIX plunged nearly 16% in one day - a huge release of fear.
Did the Fed really stoke this Wednesday rally or was it something else entirely? Alas, the Fed and Chairman Bernanke did say there have been some improvements in the economy but it still needed the support and accommodation to make sure there was no turning back. While the evidence of QE enhancement tactics is sketchy there is a policy in place and only ONE Federal Open Market Committee. Critics often voice their opinion but we have to live with the decisions of the Fed.
Other central banks are likely to pivot off the Fed's actions here or as their situations require some adjustments, it'll be important to watch how the markets react.
Going forward, Chairman Bernanke stated the Fed will continue to cut back on their aggressive bond purchase policy. In fact, they are likely to cut back by the same amount each meeting as the data continue to warrant. As always, he left himself and the Committee an 'out clause' (some call it the Bernanke Put), stating they can/will press on the gas again if needed. This has become a long term quest to re-establish normalization in the economy. Through their efforts it appears that is happening, but the journey is far from over.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.