The U.S. Federal Reserve announced plans to trim its aggressive bond-buying program by $10 billion but will maintain its key interest rate at low levels for even longer than previously promised. This is precisely the way things always go in Washington. Granted, only a 12% of the analysts thought the Fed would Taper today pushing the decision off until March. However, this is where understanding politics comes in handy.
This is the Lame Duck strategy. Just look at Congress. After the elections yet before the new Congress comes in, they vote for things that nobody would do otherwise. Why? This is when people are leaving and they have nothing to lose.
This is a psychological game of CONFIDENCE and has no real economic impact whatsoever. $10 billion relative to the $17 trillion national debt is 0.00058%. Someone who pisses in a swimming pool has a bigger impact. This is why the Fed came out and said it will keep interest rates low even longer trying not to harm the markets. For you see, the Fed sent emails looking to speak to people on the HILL yesterday to explain their position. Those calls go out into tomorrow.
In the Dow, we need a closing ABOVE 16060 to press to new highs short-term. Why is the Fed concerned about markets? The ONLY time I get phone calls from the HILL asking my opinion should there be some intervention is when the stock market declines – nothing else. Why? Because people on the HILL have pension funds and unless you personally impact them, they are neutral. Thus, the Fed explaining the change in QE, but offsetting that with promising to keep rates low even longer. That is a hollow promise for things will change and force changes based upon trends irrespective of what they promise.
Behind the Curtain and looking beyond the hype, this is the way it really works on the HILL. It is NEVER as portrayed to the public.
