Investors focusing on the tapering question probably are missing the bigger picture about Federal Reserve policy and how it will continue to shape financial markets.
The central bank itself has been insistent recently that the $85 billion a month in bond purchases surrounding the tapering question are the less relevant of the two main prongs—the other being the near-zero funds rate—of the historically easy monetary policy since the financial crisis.
Still, investors continue to focus on Long-Scale Asset Purchases—known formally as quantitative easing and less so as money-printing—while not paying enough attention to the more important question of forward guidance and how that affects the interest rate picture.
“This taper thing is a ruse,” said Kevin Ferry, president of Cronus Futures Management in Chicago and author of the Contrarian Corner blog. “If you really put the question to (investors of what tapering means), they don’t have the answers.”
Aside from mild relief rallies the likes of which came Tuesday, markets have been wobbly since essentially mid-June when Fed Chairman Ben Bernanke provided the first vivid clues about when the Fed would begin to pull back on the third leg of QE.