Reaction to the Fed's 'no taper' decision
— Ron Paul (@RonPaul) September 18, 2013
He was expected to do it, but Ben Bernanke decided that there would be no taper after all.
Gold is up, stocks are up and the US dollar is down. Chatter on the web speculated why taper was a no-go.
Quartz notes that a lot of people got it wrong:
There are plenty of red faces among the ranks of interest rate strategists who are well-paid to predict what the Federal Reserve will do next. They pretty much all got it wrong. And the fact that the Fed was willing to hold off on the taper despite well entrenched expectations from the market suggests, to some, that the Fed is much more worried about the state of the economy than was previously thought
Business Insider says Bernanke took a queue from what happened after his June announcement:
[The] Fed head recognized that the language in the FOMC's June 19 statement and the tone of his own subsequent press conference clearly had an unanticipated, undesirable effect on financial markets and the economy, and he felt the need to reverse some of that today by going against the consensus and leaving the current quantitative easing program as-is.
Wonkblog's Neil Irwin says Bernanke was trying to head off congress:
Yes, the Fed is powerful. Yes, it's program of open-ended money printing and a pledge to keep low interest rates in place for years has helped keep the economy growing despite fiscal tightening thus far. And yes, if Congress really blows it and brings on a new wave of crisis by messing around with the country's creditworthiness, the Fed will do what it can to try to offset the damage.
Mohamed El-Erian blamsd congress, but adds underlying economic weakness (paywall).
The Federal Reserve . . . worries about America’s tepid recovery, high unemployment rate and the risk of another round of self-manufacturing problems courtesy of Congress. It may also be signalling its concern about triggering renewed financial volatility that would undermine growth, job creation and global financial stability – worries that are unlikely to dissipate easily given the different reaction functions of the economy and markets.
Harlan Green, publisher of PopularEconomics.com, suspects Bernanke was keeping in mind his likely successor:
But another reason may be that Janet Yellen is now Bernanke's heir apparent as Fed Chairman, since Larry Summers dropped out of the running. And Dr. Yellen has been his strongest supporter of the QE programs as Vice Chairman. Professor Bernanke looked relieved at his press conference with a 9-1 vote supporting the decision to maintain QE3 purchase levels, referring several times to the success of QE3 and earlier easing programs that have boosted the real estate and the automotive industries, in particular.
David Franklin likes what today's post-taper market moves say about gold:
For weeks now, gold bears have been out in force believing that ‘tapering’ would mark another leg down for gold. Given the drop in the gold price each time tapering is even hinted at, one might not be surprised at this prediction. But with tapering delayed, gold and the other precious metals appear to have found a bottom and now have limited downside.
That empty feeling inside when you realize that this may be the last time that Bernanke talks to you about monetary policy. <sniff>
— Justin Wolfers (@justinwolfers) September 18, 2013
As I have been saying since the bailouts began in 2008, the Fed has conjured a perfect Catch-22 scenario for the U.S. economy. If the Fed cuts QE while conditions remain tenuous, the stark reality that we have been living on borrowed time will be revealed. If the Fed continues stimulus the catastrophe will take longer to unfold. But eventually, foreign creditors will finish their strategy of dumping the dollar in bilateral trade and our economy takes a dive anyway. Cancel stimulus and we croak. Continue stimulus and we croak.
Ultimately, QE cuts will be detrimental because they are MEANT to be detrimental, and this is in pursuit of one of only two possible goals: Either the Fed is seeking to deliberately undermine the U.S. economy in order to set in motion a final collapse, or, the Fed wants to create just enough desperation in order to force the American people to beg for more stimulus, and thus force us to accept partial responsibility for the eventual inflationary demise of the dollar. In either case, the Fed's tactics serve one purpose – to secure the globalization of America by any means necessary.
Image of McKinley-Hobart "Sound Money" Portrait Textile from Cornell University Library.