The Post-Fed Paralysis

Last week’s surprise Fed decision to hold off on any “tapering” of its $85-billion-per-month bond-buying scheme caused a lot of dislocation in the financial markets. First there was the big spike higher in stocks, bonds and gold prices immediately following the news. Then just a couple of days later there was some big selling in the equity markets as several Fed governors came out and said that the tapering could begin as soon as next month — depending on the data.

The result of the Fed’s decision last week, and the renewed taper talk that followed, has left the markets somewhat paralyzed about what to do next.

In fact, since the Fed’s decision a week ago, stocks have given back all of their post-decision gains. Bonds have rallied, and bond yields have seen a big plunge. We’ve also seen some modest economic data such as a decline in consumer confidence and a tepid durable goods report.

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