This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Global Macro: The Fed Doesn't Taper for Good Reason

NEW YORK (TheStreet) -- The big news out of the Federal Reserve meeting on Wednesday was that Fed officials have chosen not to taper just yet. That led to a spike higher in almost all asset classes.

To look at the fundamentals, there was a strong case against tapering now. Although this is in hindsight, that the Fed reduced its growth outlook yesterday was the first signal that tapering was probably not yet on the table.

Reducing growth forecasts and then telling markets support to help that growth will be removed is somewhat counterintuitive.

Meanwhile, bank lending rates are at multiyear lows. Bank lending simply hasn't returned to its pre-recession levels. The gradual nature of the economic recovery as seen in the data has led to a slower-than-expected return to credit lending growth.

The talk of Fed tapering hasn't helped lending, either, as higher rates have made it more expensive to borrow. And so it didn't seem like a wise time for the Fed to start forcing rates higher.

Lastly, with Larry Summers out of the race as new Federal Reserve chairman, Janet Yellen, now the Fed's vice chairwoman, is perceived as the front-runner. She is said to be dovish in her policy stance, which means she would probably prefer to keep stimulus measures in place.

With Fed Chairman Ben Bernanke expected to leave office in 2014, it would present a difficult situation if the Fed were to start tapering now and leave Yellen in a situation where she may feel more accommodative policy is necessary.

To make the transition easier, it makes sense the Fed would hold back on slowing bond purchases.

As stated earlier, financial markets exploded higher on Wednesday on the news that no tapering was taking place.

The first chart below is of Market Vectors Gold Miners ETF (GDX).

Mining stocks had shown extreme weakness the past few weeks as commodities fell due to the fading threat of Syrian conflict. Similarly, equities were in a sideways trend leading into the Fed meeting.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,960.57 -123.23 -0.72%
S&P 500 1,978.34 -9.64 -0.48%
NASDAQ 4,449.5640 -22.5440 -0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs