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Fed "Tightens", Tapers $10 Billion - Full Redline
Despite the world of mainstream media pundits proclaiming the US is recovering nicely and that a taper is priced in (and the warning that the 5Y auction gave this morning that it's not), markets are already reacting violently to the Fed's decision to announce a small 'taper' (and more dovish forward guidance)...
- *FED TAPERS QE TO $75 BLN MONTHLY PACE, STARTING IN JANUARY
- *FED SAYS `FURTHER MEASURED STEPS' POSSIBLE ON TAPERING
- *FED: EXCEPTIONALLY LOW RATES UNTIL JOBLESS FALLS WELL PAST 6.5%
We now leave it to Ben and his final press conference to explain his decision... and, of course, make sure everyone remembers "QE is for Main Street", 'tapering is not tightening' (despite Jim Bullard telling us it is), and just how effective 'forward guidance' is.
Pre-FOMC: S&P Fut 1771 (spiked pre-FOMC), 5Y 1.55%, 10Y 2.875%, VIX 16.5%, Gold $1236 (which was spiking pre-FOMC), EUR 1.376
As a reminder, here are the 4 reasons why the Fed was cornered into tapering... as we have noted numerous times before; the "taper" is all about economic cover for a forced move the Fed has to make:
1. Deficits are shrinking and the Fed has less and less room for its buying
2. Under the surface, various non-mainstream technicalities are breaking in the markets due to the size of the Fed's position (repo markets, bond specialness, and fail-to-delivers among them).
3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government's debt (which it clearly is), then the game accelerates away from them very quickly - and we suspect they fear we are close to that tipping point
4. The rest of the world is not happy. As Canada just noted, the US monetary policy will be discussed at the G-20
Simply put, they were cornered and needed to Taper sooner rather later...
and as Jim Bullard previously noted,
“Financial market reaction to the June and September FOMC meetings provides sharp evidence that changes in the expected pace of asset purchases have conventional monetary policy effects.
Using the pace of purchases as the policy instrument is just as effective as normal monetary policy actions would be in normal times”
Or - in other words:
Tapering Is Tightening
And as BAML noted previously, forward guidance is ineffective as,
...policy makers are finding it harder to convince markets that central bankers have more insight into the future course of the economy and policy than they actually do. Meanwhile, markets are learning that it can be painful to rely too heavily on forward guidance when the risk/reward of being long fixed income is asymmetrical when close to the zero lower bound.
Full Statement redline below:
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I read somewhere that the end of extended unemployment comp will drop it by at least .5% so we will be there next month.
And the market goes fully parabolic?
Ok...fuck this shit. I'm going to a bar. It's the only logical thing to do at this point...And yes, I'm gonna smoke a bowl on the way. So there.
I already did that and can only advise you to do similar ;-)
gotta run all the stops that were there in case ben didnt announce a taper.
Tokin' Tapir?
ahh the ravages of deflation! its burns!
visoin burring...
energy fading..
must ...
keep..
buying...
moarrrrrrr...
The Bernank is shoving it in all our faces right now. The DOW +165 on the taper?
Quite literally creaming its pants right now...
And in September, when he didn't taper? Up even more. Praised if he does, praised if he doesn't. That's some cozy corner Ben's painted himself into.
Now that that's over with...Rally on Garth.
Rally on Garth...that really does say everything that needs to be said.
Another of the GOP/DNC budget cuts, "we're just going to trim a little off of the original amount we were planning on adding to the budget."
This is incredible, give me example (outside of government) where you can say, "I was going to speed 20 gajillion dollars more, but I decided to only spend 19.8 gajillion dollars more, so I 'cut' .2 gajillion dollars."
Until unemployment falls "well past" 6.5%. Talk about fucking nebulous wording. What a bullshit metric!
GO FUCK YOURSELF FED!
its all about participation!!!! since people done want to get involved, voting or otherwise, once that dips below 60% u/e will by below 6.5% ...voila!
Yet, their money printing will magically increase.
same old bullshit, how is going to change 10B less every month from the whole picture? I got to admit though that Bernanke and company have done a pretty good job manipulating the gold market thus preventing the empire to fall.
Reducing morphium dosage from 85 to 75 ml.
Watch USD/JPY. It's moving like crazy.
http://www.oanda.com/currency/live-exchange-rates/USDJPY/ ?
DOW up 150 points on a $10 Billion dollar Taper?
10 CC's less of Heroin makes the addict happy?
Tails they win, heads you lose.
Come on.
Guess he should have tapered 30B. Could have been +500
Masters of the Universe..."See, it doesn't hurt!!" You can BET on the FED having its cake and eating it too. It continues: BTFD. Get over it.
Hey you guys Look at this sugar high! 143+ on the heels of the announcement. MOAR!
This is just more of the same. The $10 was just throwing the dog a bone.
The bubble builds!
are the algos programmed to go up on every fucking thing?
now taper is fucking good?
what is this fucking shitshow
t
Lets see what happens in the next couple days... the only thing driving up stock prices was the FED for what seems like forever now... so... yeah, less QE = higher stock prices? No.
Luckily for them, there's always QF-QZ.
The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent,
Expecting .75% Fed Funds rate by end of 2015 and 1.75% by end of 2016.
Targeting inflation or the lack of it. Was extremely serious in telling us that prices need to go up more, before we will be better off and that they need to keep going up so we can keep getting better off.
He says that in order to preserve the current economic model they need to continue to intervene against such a market's principles so that they can preserve those very principles.
It's fricking madness. The taper is simply background noise relative to the whole situation.
.
it is definitely time to panic. SELL EVERYTHING!
I suggest you panic buy.
They saved Santa's rally!
I picked up USLV at 47.50 and three minutes later sold it at 50.50. That was the hairiest flip I have done since Draghi's "believe me" speech. What made it really interesting was the two dollar spread on bid vs ask. Seems to have settled down now. LOL
market up 1.0% on $10bn...does that mean it would have increased 8.5% if they killed the whole program? in an odd change of events, by keeping $85bn in play so long, the fed was saying the economy is no where near as strong as the stock markets where showing. but now that the taper has a positve effect on markets, could they now use further reductions to combate softness in the stock market? perhaps will see tapering into continued market weakness. hopefully the fed now sees that playing the stock market isn't that easy.
Increased QE only thing they can do......done
an 11% taper, does that mean the market should come down just as much?
the market is way ahead the future balance sheet now
Stock pimps on CNBC say this is a buying signal for folks.
"Buy those equities! The recovery is here and strengthening!"
'Taper', my ass! All they are really doing is SLOWING the Increase in Currency* Supply, i.e. slowing the USD printing presses
If the USD did not enjoy its GRC (Global Reserve Currency) status, we'd have gone the way of Zimbabwe, Yugoslavia and the Weimar Republic: Hyper-Inflation, then Collapse. As it is, we 'export' our Debt-based and DoD-backed currency to the rest of the dumb-ass planet: We send them confetti, they send us cheap stuff (based on cheap resources and cheap labor).
/ Hey, wait a minute, maybe this isn't such a bad idea after all, given that we get to enslave the planet for our Imperial benefit. In which case, given that we ALL love OPM etc... why are we bitching about this scam/model the US is imposing on others? Fuck it, give us MOAR! /s
* Fiat Currency, which they call "Money". They get to use this word-game, because it and their counterfeit operation is backed by their Arrogance of Power, thanks to the LEAs and the DoD (whom they have on their fiat payroll).
Well put.
Doesn't matter what little policy tricks they play, this works until it don't, and nobody - nodbody - knows when it don't.
With a nearly 100% probability it will happen before 2030. ;-)
Place your bets on the next FOMC right here!
investments.bookie
The market is up because QE was essentially increased (duration). They cut $10 billion/month, but added $75 billion/month to continue for many more months because of the new 6.5% unemployment threshold. Fucking game of three-card Monte.
and another program will pop up somewhere else to replace the $10B and add more to it
Taper on, stocks up! Maybe we, at ZH, don't know something...maybe the economy really is stronger...personally i think not.
I must admit. I'm starting to wonder if I'm wrong. The restaurants look like I am. But the stores and for sale signs say I'm not.
i feel the same way, the stores are all having deep discounts already, but the restaurants seem packed...WTF?
we've had some great weather, but the home improvement guys are empty. construction about the only real jobs left.
People don't know how to cook their own meals and they want to keep up appearances that they're well-to-do.
Look you just don't get it. It doesn't matter what the fed did or said. The robot controlled market was going to rally on any news. Ten billion dollars in tapering is just a pimple on the one trillion twenty billion the fed is buying per year.
...and the interest rate Doc, or should I say lack of interest rates. We are being head-faked once again.
If Fed action was responsible for the market going nuts,
and the Fed is reducing their action,
then why is the market going nuts?
Someone please explain to this rube.
the young bull says to the old bull, let's run down the hill and fuck one of those cows.
the old bull says, no, let's walk down and fuck all of them.
smaller monthly QE total, but for much longer.
Give it a week
Okay, so the stock ramp is starting to make sense - the FED is saying despite taper they will keep interest rates "exceptionally low".
Bingo, Ebworthen.
I'm reminded of Bullwinkle's attempts to pull a rabbit out of his hat.
If only Rocky were around for a mature perspective on this gimmick.
check out the pre announce stop run higher. manip
It's the taper -- that isn't!
It's a superficial "throw the dog a bone", while they have actually INCREASED the easy money chat.
Everything back to where it was before the announcement except stawks lol.
STOCKS UP, ITS A CHRISTMAS MIRACLE GUYS!
The Free market has decided that the USDX will not go under 80 today . . . or did Bennie say: Make it so.
. . . . and it's gone.
Lets just face it. Bernanke is optimizing the S&P to reach BTFATH levels right as he is leaving chairman.
Let's see, they highjacked our money system, bought our politicians and courts, has no oversite, and has never had a full audit. And we believe what they tell us?
Low rates "forever" -- not much "tightening."
This token leaves plenty of room for increased bond or asset purchases - Fed hedging (until it cannot).
Financial repression continues.
Remember all the ADAMANT ASSERTIONS that they'll "never, ... NEVER Taper"? All you Taper Deniers: Bend Over and take it like Shill! Let's see ... the word CREDIBILITY comes to mind.
I still don't believe they are going to do it. They're merely redirecting the flow from somewhere else that is presently unseen.
Remember, there IS NO MARKET. There is the Treasury, and the Fed, along with their minions.
Oh Laudy VIX monkey hammered.
*FED: EXCEPTIONALLY LOW RATES UNTIL JOBLESS FALLS WELL PAST 6.5%
( In Fed speak = until you're a member of the Free Shit Army or drop out of the labor force)
Well, the US is quite an exceptional entity.
yeah it is confirmed QE infinity now
So... they're basically following my "tails" script from yesterday. http://www.zerohedge.com/news/2013-12-17/previewing-tomorrows-fed-prison...
Pigmen were already positioned appropriately, I'm sure.
To me, the taper was an announcement that the Fed would be ending QE by gradually reducing purchases over a preannounced period of time. What we got was a one-time reduction in QE, with a message that the Fed would consider further reductions in the future. So this might be the beginning of a taper, or maybe not.
This was probably a compromise between Bernanke who seemed to want a full taper and Yellen who didn't want any QE reduction.
exaclty, this statement says 85B is the new NORMAL and we can work above and below that number as we see fit, wall street loves it of course, because if the economy fails (a given) the next QE will be on an order of magnitude which BEGINS at this level, and goes higher
So my last night hunch was right when I saw that the FED was taking the 10-Year down, pre-loading:
“FED is bringing down the 10-Year right now! 2.84% right now unlike last time when it went up just before. So what does that tell us?
They’re gonna risk a taper message and are pre-loading?”?
https://www.youtube.com/watch?v=FajadEowsuk&google_comment_id=z13rchtruryqhbcrh04cenrjztqkz31xsic
Question remaining, what will the 10-Year do?
US Generic Govt 10 Year Yield 2.87% right Now. http://www.bloomberg.com/quote/USGG10YR:IND
It's this simple... higher rates will park this Titanic economy right into a glacier. Once rates start moving up, the fed may just panic and roll out more QE or equivalent.
Fed still has its traditional tools, REPO and POMO, they could pull 15B out of QE and push twice that amount into investment bank accounts through these standard policy tools. one of the keys to this was putting the budget ceiling debate into a headlock, now suddenly it is one party and a couple angry tea party types. funny how that works. this move today is like a joke in a sitcom with plenty of canned laughs. it does nothing for main street, (except preserve stock market gains tied to pension funds and 401Ks, and it keeps borrowing costs low) they are probably high fiving it right now, but we're the group being pushed into a no job, stealth inflation, no interest on our savings if we have any, corner. and its not funny.
Good thinking.
"...and its not funny."
Always can bet the richest making $$ from the Fed's actions cannot ever have their assets nor money itself become worthless. You finance any Save the Rich campaign by screwing the serfs. Sally Struthers ought to do those commercials again, but for the top 1%. Sally in her most pathetic voice with eyes watering: "Won't you please help?"
Unemployment at 6.5%? The cut off mark? Well, perhaps we'll reach it and everyone can be happy. Those newly created jobs at $10 an hour will ruin any middle-class happiness though and the Fed can say they reached their 6.5% goal anyway.
And you're right. It's NOT funny.
You have to move in with swat teams at twelve locations all at the same time and throw the criminals into jail. Those fuckers won't stop until they are locked up.
Just a reminder: there will still be as much as $12.75 B of POMO thru next Monday. There is still plenty of "lube" left for the markets for the balance of the month.
Next QE: bailouts for health insurance companies & buying toxic student load debt
So is this a sign that there is a genuine economic recovery in progress, and that fed policy will indeed gradually revert to historical norms, an end to all asset purchases, then an end to ZIRP, and finally perhaps even periodic cessation of open market operations entirely?
ZH would of course say not a chance in hell.
It would be an interesting exercise, then, for ZH to define how far down that recovery line we would have to go before even they would have to say 'we were wrong, the global economy is more complicated than we thought, and permadoom isn't always the answer'. What is that threshhold? Without one, bears and PM bugs could sink gradually but devastatingly over the course of decades, always thinking the other shoe is about to drop. No one can know whether that is what will actually happen, but what a tragic fate it would be. Why not keep an open mind to the possibility that we don't know everything?
What fucking recovery are you talking about? I can't see it and neither can the vast majority of the people in this fucking country who are facing higher gas and food prices while cocksuckers like you and the bernake pontificate about how there is no inflation.
Most people are struggling mightily. That is not a sign of any recovery I can see.
Thye stocl market is NOT the economy you fucking dolt!
Where did I mention the stock market?
All I asked was if there were anything that could possibly happen that would ever convince ZH contributors and the community that they were wrong. It could be fed policy, economic indicators, the stock market, whatever you like.
I'm just asking for the slightest crack of open-mindedness: acknowledging the possibility of being wrong, and the defining the evidence that would be required to determine that it had come to pass.
Oh sure. Please, I'd like 10% interest rates. In real terms, not nominal.
Now that's recovered. Unfortunately the government would default. And all the banks. Which is why it won't happen.
I will answer your question with a question....If there were a recovery happening why then does the fed continue to buy over one trillion in trash assets with the possibility to buy moar?
Because that is the only policy tool at their disposal. I do not defend it, and have no idea if it even works. In fact, I suspect it doesn't.
The only thing we know is that if there is indeed a recovery, in retrospect this and other things will look like natural steps in that process. It doesn't mean the recovery is genuine, or sustainable, but why not at least acknowledge the possibility?
BTW, you just undermined your first comment by admitting you don't understand if QE works as advertised.
Here's the rub: IT CAN'T!
Spurring on debt-fueled malinvestment can NEVER save an economy because all it does is to consume capital. Economies grow not due to production, but due to demand.
Where does sustainable demand come from?
SAVINGS
So, how does one save in this ZIRP World?
Rock, meet hard place.
www.mises.org is your friend
My apologies, as a ZH reader I should have known that you would be unfamiliar with the idea of someone acknowledging that they cannot predict the consequences of something with 100% accuracy.
I am very familiar with the Austrian school of economics and am quite partial to it, but you'll have to forgive for not being a slavish, unquestioning adherent. QE may contribute to a recovery, impede one, or simply do nothing. I actually suspect the latter is true, but if it's difficult to know for sure. Anyone telling you otherwise is a fool.
I do not see any obstacle to saving, I think even a ZH commenter would argue that one could save effectively in gold and silver. Or bitcoin, or whatever other non-productive asset to which you guys tend to stubbornly confine yourselves.
Since you're so open-minded perhaps you could explain why they should have shut down QE and raised interest rates back to their historical average?
Do you mean why they should do that right now? I am not a monetary policy expert (and don't even necessarily agree that we should have monetary policy in the first place), but massive abrupt swings in such policy seem like a really bad idea, so I wouldn't have advised that at all :)
My point was only that if we are indeed in a recovery, this would be a natural step in that process, and that the end would presumably a monetary policy sans ZIRP or QE.
You admit that you don't really know what you're talking about, then start drawing conclusions. Brilliant.
How about this: If the reduction in deficit spending was one of the indicators that the Fed relied on for this, there are two problems.
1. Since the US's fiscal year is Oct 1 - Sept. 31, and the Treasury was using extraordinary measures (i.e. cooking the books) during the latter part of US FY 2013 because we were up against the debt ceiling, then in Oct (FY 2014,) when the debt ceiling "crisis" was resolved, $327 billion was added to the national debt in one day, it is quite safe to say that we were still spending on a deficit during those extraordinary measures, but about $300 billion of that deficit spending was shoved off the books for FY 2013 and onto the books for FY 2014. In other words, deficit reduction for FY 2013 is an erroneous indicator.
2. Obamacare is coming online. The "tax" for those who don't get a plan is a very far cry from what policies cost. Unless something is done about Obamacare, deficits will go up. As we get closer to the delayed employer mandate, full time employment, along with tax revenue will go down, and so will discretionary income.
Really? Neither of those is true. Saying that I can't predict the behavior of a complex dynamic system is not the same as saying I don't know what I'm talking about. It's just practicing reasonable self-doubt.
And what conclusions did I draw? All I have argued is that it is conceivable that we are in the midst of a recovery.
Followed up by:
Does anyone believe for a second that that den of thieves won't be shoveling cash into the market through other means. You have to lock them up for over 100 years they have proved this over and over. In the 1939s some think the Government had to assassinate one of the top bank CEOs to get them to stop. That seemed to work for a while.
Killing the bankers would be a good start.
In the 1939s some think the Government had to assassinate one of the top bank CEOs to get them to stop. That seemed to work for a while.
What CEO? Please continue...
Can the markets handle $10B in taper over the next few months? We'll see. If they reduce QE again, and then again, they're eventually going to hit a point where they have to let banks collapse, or we will see the Great Un-Taper.
I see the ZH comment section behaving like algo's going berserk. Let's wait till the dust settles. This little tapertest won't hold. Or maybe the second, 15 billion taper will do the job.
Edit; taper up & down with a nice 2014 average of 70 billion. And lots of blah blah of course.
Experienced a fine, oily taper this morning, but was unprepared for the explosion that followed. Just a normal shit-show, replete with skid marks and horrific burning.....
Jim Willie stateing the Fed more like putting in 200 billion a month.
..and Morgan stating the fed may taper but raise banks reserve requirements making them buy the bonds instead
Telling the slaves you are going to 'taper' is quite different than actually "tapering" Though I had a large lunch and need to go taper myself!
QE forever nuts strike out again. First it was hyperinflation or bust, now its can't taper, ever. Meanwhile the tycoons in China print and buy out all assets all over the world with FREE MONEY.
one way or another the Fed will keep the dollar alive until it's rotting corpse stinks so badly that none can stand it.
I believe that if they do actually spend less on bonds and MBS that they have some other plan to keep the monetary world alive. Maybe they are doing some Forex swaps and declaring a taper to make the situation look less dire.
The 10 year actually rose! I guess that was the market saying 'we thought the taper would be bigger'. I have to admit they have me confused but then we don't really know what is going on at all levels do we. My best guess is that history will show that the Fed is every bit as active in keeping the dollar alive today as it was yesterday....cuz they must!
Free shit army +1 Responsible humans +FUCKED
$10B Taper = $75B in 10 yr and MBS + $10B in stocks. So POMO was just increased by $10B.
whats all the hoo haaa?
10 billion a month is funny but not as funny as the 200 million the US budget is going to cut every month for the next 10 years. That makes me laugh so hard it hurts. 23 billion over 10 years!!! WTF!!
aaaannnnd the Robots win again.
When will your cornholes wake up?
Martin Armstrong was right and the gold promoters were wrong.
Tapering 10 billion?
Translation: The FED has established a collateral monetary lifeline to replace this taper. Am counting on Zero Hedge to uncover the alternate source of funding to make up this deficiency. It certainly won't be on the FED's QE books.
POMO. QE operations are done through it, but POMOs themselves are not part of QE. They can increase POMOs and not tell anyone and not have to call it anything either.
The beginning of the end or the end of the beginning?
Or the beginning of the middle of the end?
Yup, I said it here 6 weeks ago BB would taper in December and got laughed at.
Said over 2 years ago to sell pm's.
Who's laughing now???
Yeah, wish I knew enough about Armstrong and his computer model then. Would have made me a lot of money. I would have sold, buy the Dow and rebought within the next year.
IT'S ALL ABOUT CAPITAL FLOWS!
Good for you, I like hearing from real contrarians like you, the lot here is mostly lost to idiocy. It took only 10-years for US to go bankrupt after Kennedy cut taxes and then we got two confidence tricksters(Reagan and Bush) that told us that cutting taxes creates jobs and capital formation. But morons here still believe this bullshit about taxes and job creators.
But they are not tapering. They said they would taper in January. Lets see what they actually do.
PMs will start going up soon because within few months the Fed will increase their buying.
Japan should start paying for US military support.
This is largely a psy-op. They'll say they're tapering, but not taper. However, they will divert $10B per month into difficult to identify areas to make it appear like a real taper.
But the real purpose is to set up Yellen as a hero. When the next statistical blip occurs, Yellen will raise raise fed buying back to $85B, then beyond...
... and everyone will forget the name Bernanke.
However, when hyperinflation and/or complete collapse finally happens, Bernanke will point at his $10-billion reduction and say "the collapse would never have happened if they just kept cutting like I started".
Anyway you cut this... it is pure PR... pure psy-ops.
Vote: Keep it (see below)
Vote: Sell it now (see below)
Little help please. I own a house here in DC (I have a sizeable mortgage), my primary residence, that I could quickly sell for $725k or so and put some cash in the bank. Given the state of the economy, gubmint fiscal policy, the Feds actions, prospects for inflation/deflation, etc., am I better off financially over the next 5-10 years to keep it, or sell it now. Please vote above. And if interested in providing your reasoning, please do. Thx.
The Fed was simply expected to taper. The mainstream think that the economy is recovering, so there is the expectation for tapering. 85$ billion to $75 billion is a step toward realizing the taper rhetoric. If you notice, the Fed used careful words in how the continuing of tapering would be data dependent. The Fed can untaper just as it can taper, raise QE. I believe the Federal Reserve isn't that naive to cut QE completely. It knows that QE is driving statistical increases in the stock market, etc. I don't think they are that foolish to continue the taper knowingly QE is directly resulting in statistical outcomes. The taper is data dependent. Taper in my opinion was a result from pressure from the expectations of the market. You know you have to make the market's believe there is a real recovery. You play along with the prodominant narrative, and hope things don't get too ugly in the process. In the end, despite this taper-lite, the Fed's balance sheet still increases & still subject to reversal in policy.