Fed Refrains From Taper, Seeks More Evidence of Sustained Growth
Comment of the Day

September 18 2013

Commentary by Eoin Treacy

Fed Refrains From Taper, Seeks More Evidence of Sustained Growth

This article by Joshua Zumbrun and Jeff Kearns for Bloomberg covers the main highlights of today's Fed announcement on the prospects of tapering quantitative easing. Here is a section
In June, they had estimated 2.3 percent to 2.6 percent growth in 2013, 3 percent to 3.5 percent expansion in 2014 and
2.9 percent to 3.6 percent growth in 2015. The central tendency forecasts exclude the three highest and three lowest

“They feel the risks are too great to taper now, and the economy is not growing as fast as they had hoped,” said John
Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina. “They are going to take a few more months and
maybe start in December.”

The Fed said that inflation had been running below its longer run objective of 2 percent. The central bank's preferred
gauge of inflation climbed 1.4 percent in the year through July. It has not breached 2 percent since March 2012.

Eoin Treacy's view The surge in bond yields that occurred following the suggestion that tapering may begin in September has been enough to make the Fed more reticent about its proposal if today's announcement is anything to go by. The market has taken the news as a signal to get back to business with risk assets surging higher, the Dollar pulling back sharply and gold rebounding.

US 10-year Treasury yields have at least paused in the region of 3% and pulled back sharply today to break the progression of higher reaction lows. This suggests at least a peak of near-term significance and the prospect of some ranging below this peak has increased substantially. A sustained move above 3% will be required to reconfirm supply dominance.

The S&P 500, Russell 2000 and Nasdaq-100 all extended their respective uptrends and while short-term overbought conditions are evident, clear downward dynamics would be required to check momentum.

Gold posted a large upside key reversal today to form a higher reaction low above the late June nadir. A sustained move below $1300 would now be required to check potential for additional upside. Silver also rallied impressively.

The associated Dollar weakness of prolonging QE resulted in a surge for the vast majority of currencies. This is likely to be of particular benefit for Asian stock markets which have been bouncing following heavy pressure on their currencies over the last few months.

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