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A Few Small Point on the Fed’s Delay in Tapering

Posted by WorldWideMarkets . on Sep 20, 2013 2:44:00 AM
Now that the the Fed shock is two days old and to become ancient history by Monday, it’s time to reflect on what the delay in tapering stimulus for the U.S. economy means for day to day trading. Fed Chairman Ben Bernanke did not rule out tapering this year, he just indicated that the Fed wanted to wait for more evidence of solid economic growth. "There is no fixed calendar schedule. I really have to emphasize that," Bernanke said. "If the data confirm our basic outlook, if we gain more confidence in that outlook ... then we could move later this year."
    What it means is that once again the U.S. dollar will move very much on economic data points leading up to each meeting. If the data is good, the dollar will rise, if the data is weak, the dollar will sell off. This, of course, is what has happened for years but given the thinking is that the Fed wants to begin tapering, and there have been enough clear signals from various speakers that is so, the data will only lead to increased short term volatility with investors hanging on every word.
    Which gives rise to one more thought on the Fed. There were undoubtedly investors this week who were short the dollar on the off chance that the Fed would defy market expectations. They have surely done well. But there were many more who lost money even if only on paper. How could so many investors read the Fed wrong given the apparent openness and transparency policy under Bernanke? There was always the chance that the Fed would not act. There was no clear signal that the month would be September. But the market was clearly pricing in that the Fed would begin tapering. There certainly seems to have been no signal that they would not act this month. While one can wonder what the Fed sees that the common investor does not, there is likely to be more caution going forward even amidst the volatility. trading Bernanke

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