NEW YORK ( TheStreet) -- The Federal Open Market Committee decision to modify the original QE3 plan not only gives the Fed much-needed flexibility managing the widely feared exit scenario but also provides stronger support in case things get worse.But the market reaction Wednesday was even more significant. There was a brief risk-on rally, with Treasuries ( iShares Barclay's 20+ Yrs Treasury Bond ( TLT) ETF) down, and stocks ( SPDR S&P 500 ( SPY) ETF) and gold ( SPDR Gold Trust ( GLD) ETF -- which in its inflation-protection hat is a risk-on asset in the current context) up, that lasted for an hour.
Then the market seemed to have forgotten about the Fed and went back to the corner, sulking in the gloom of the earlier ADP ( ADP) miss. Two things are very clear:
- 1. The excitement over the prospect of a (finally) strong and sustained recovery of the U.S. economy earlier in the year is gone. It's another case of green shoots that have sprouted and quickly died every spring since 2010.
- 2. The excitement over Fed quantitative easing is gone. Nobody's worried about inflation anymore. And this is not a vote of confidence in the Fed, otherwise stocks would go up and Treasuries down. Rather, it is a clear vote of no confidence in the Fed in the sense that the market believes the Fed can do little to help the economy.