The Fed surprised the markets by not tapering yesterday. The equities and debt markets shot up. I think this was a bad decision. The markets had taken some hits in anticipation of the taper, and the market completely expected the taper. Had it come, there would have been little reaction. Instead, we don’t get a taper and the market shoots up. So the market will continue to be artificially manipulated and we will have to deal with the taper anticipation at some future point, again disrupting markets, maybe more than what we just experienced. We had already put in the initial pain in anticipation of the taper, so the Fed would have gotten a free pass yesterday. A bad move by the Fed not to taper.
More important than the action of the markets is the impact on the real economy. The economy needs to get back to a free market where interest rates are not manipulated. Retirees and savers continue to be strangled by artificially low rates. Everyday citizens are hurt by high commodity prices. The equity and debt markets rallied yesterday, helping investors, but commodity prices rallied by more, including the energy markets. That means regular citizens will continue to be hurt. Yes, lower rates help borrowers, but everyone else continues to be damaged by these low rate policies.
The only possible reason not to taper, assuming you believe that artificially low interest rates actually help the economy at this point, would be because of the possible government shutdown in a few weeks. I have no doubt that we are on a possible collision course in that regard.
But short of that, the Fed needs to begin to taper at a measured pace and the sooner the better. We need get back to a real economy that actually grows.
