Taper Caper Shreds Fed's Cred

Taper Caper Shreds Fed's Cred 

by Fintan Dunne - 18th Sept 2013 @ 9:30pmET 

The US Federal Reserve badly damaged its credibility today. 

Having signaled for months a tapering of it's $85 Billion QE program, the failure to deliver means that all those Fed 'taper' noises were either pure incompetence or deliberately malign misdirection. 

Either way their cred is shred. 

Huge global capital flows were triggered by the taper signals. And those Big Money players expect the Fed's signals to be broadly reliable. So much for reliability. 

So why did the Fed disappoint? 

On the face of it, if you strip away the fake 'recovery,' the US is actually in recession. Thus the Fed is locked in to QEx, because it can hardly tighten policy heading into recession. 

That is the face of conventional media-created 'wisdom'. In truth, the move has little to do with the economy - and lots to do with the mortgage and bond markets. 

The housing market is rolling over and never saw a substantial recovery. The Fed has to keep buying mortgage paper. The bond market is flaky and the Fed has to buy Treasuries at the price it likes best - if nobody else is queuing up to buy. 

So the QE has to stay. 

If so, is the Taper still "on" or not? 

Consider this telling extract from the Fed press release: 

"...The Committee will, at its coming meetings, assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course....." 

Not a "preset course"? And you thought tapering was a done deal, eh? 

Thing is, like a giant sea liner, the Fed is supposed to steer a steady and predictable course. Today was neither predicted nor steady. So, something stinks. 

The issue now, is whether the market will get that smell over the next 7 days or so - as the implications of the Taper Caper sink in.... Incompetence or deliberate misdirection... 

What could move the really big money is the off-media, Big Question: 

This one: So... will the Fed EVER be able to taper? 

That's what's gonna get attention in the next week. 

The Fed's boxed itself into a self-fulfilling prophecy now. 

Or to put it another way.... 

It's just lost control.