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We have heard noises from certain corners of the Fed today bringing up tapering, but the mildness of the decline in the stock market suggests little true concern that a reduction in stimulus is looming just around the corner.
With less than half an hour to the close on Wall Street, the Dow was down just 0.20% or 32 points at 15,751. The S&P 500 was down a similar percentage, while the NASDAQ 100 managed a small advance, climbing 0.09%.
Comments from the Dallas Fed’s Richard Fisher and the Atlanta Fed’s Richard Lockhart had stressed that tapering was in consideration, but such modest price movements are hardly indicative of investors bracing themselves for a cut back in QE and the day's small declines look to me more like the natural ebb and flow of the market than anything else.
Minneapolis Fed President Narayana Kocherlakota argued against tapering in a speech in St Paul today. ‘Reducing the flow of purchases in the near term would be a drag on the already slow rate of progress,’ he said, adding that ‘Under a goal-oriented approach, the committee would respond to this weak outlook by providing more monetary stimulus.’
It’s important to put these varying comments into context according to where they are coming from. Richard Fisher has long been a hawk, and frequently argues enough liquidity has been provided to the US financial system. Narayana Kocherlakota has also been a hawk historically, but in recent months has switched to a dovish stance.