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Why the Fed Won't Taper

By Jason Bond of Jason Bond Picks

NEW YORK (TheStreet) -- Released Nov. 20, minutes of the October 29-30 Federal Open Market Committee meeting delivered more "taper" talk fodder for the media to obfuscate and "spin" an otherwise straightforward statement regarding guidance to the Fed's so-called "quantitative easing" program.

On May 22, Federal Reserve Chairman Ben Bernanke mentioned the word "taper" as part of his testimony on Capitol Hill. It has become part of Fed-speak lexicon since, as the Fed now try to lay the difficult groundwork for ending a growing investor perception that it's creating asset price "bubbles" as a nasty side-effect of its open-market purchases of U.S. Treasurys and mortgage-backed securities.

Since Bernanke's May testimony, bubbles have grown further still.  We've seen record stock prices, a Francis Bacon painting set a record high price paid at auction of $143 million; the "Pink Star" diamond going for an unprecedented $83 million; and real estate prices in Malaysia, New Zealand and Canada to luxury homes in Sidney Australia all set fresh record-high prices.

After four months of speculation after Bernanke's May testimony, drama choreographed around the taper scare by the financial media led to the "shocking" announcement at the close of the Sept. 18 FOMC meeting that the Fed would not taper its monthly purchases of $85 billion of debt securities.

The announcement unleashed a collective sigh of relief on Wall Street.

Alas, a false alarm. Everyone back into the pool!  The "risk-on" trade is back. The Dow immediately rallied sharply, rising 200 points from the day's low, and also sending gold higher still by more than $50 per ounce following the announcement.

While the media hyped an imminent change to the Fed's five-year-long quantitative easing program during that four-month period, the few skeptics who rightfully pointed out the conditional fine print necessary to trigger a cutback in the Fed's purchases were outnumbered and out-voiced.  The power of the media drowned out the deserting voices.

"[Chairman Bernanke] never said that we were going to reduce the rate of asset purchases in September," head of the NY Fed, William Dudley, rightful pointed out in a Sept. 24 CNBC interview with Steve Liesman. "He said 'later this year.' I think that framework that he laid out is still very much intact."

But when Liesman asks Dudley whether the Fed will actually begin to taper this year, Dudley backpedals, saying, "I certainly wouldn't want to rule it out. But it depends on the data." [emphases added]

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