NEW YORK ( TheStreet) -- The confusion around whether and when the Federal Reserve will start scaling back quantitative-easing purchases of Treasury and agency bonds has persisted for months.The Fed's designated leaker, The Wall Street Journal's Jon Hilsenrath, blogged last Thursday that the Fed will not raise rates for a long time but will only scale back. OK, finally, this ought to clear up things! Markets in all asset classes rallied: stocks ( SPDR S&P 500 Index ETF ( SPY)); bonds ( iShares Barclays 20+ Year Treasury ETF ( TLT)); and gold ( SPDR Gold Trust ETF ( GLD)). Notably, markets had gone up, with no discernible driver, before Hilsenrath's blog came out at 3:39 p.m. EDT at which point everything started going up with abandon. But, on deeper scrutiny, this only adds to the confusion about the market's expectation of and reaction to the Fed's future action. Any time that stocks, bonds and gold move in synch, you can be sure the driver is excess macro liquidity. This is the key difference between RORO (risk-on, risk-off) and TOTO (taper-on, taper-off). Since Hilsenrath pretty much confirmed that the Fed will taper, shouldn't the market panic?
Because it's from the Fed, this implies uncertainty and risk, never mind the lack of real reason and inconsistency with stated targets for QE3. To quote Hilsenrath quoting Jan Hatzius, the chief economist at Goldman Sachs: "The market is saying, 'The fundamental economic outlook really hasn't changed much, but we are getting more worried about Fed policy.'" And if they talk about tapering now, it's only human to perform evolutionarily hardwired linear extrapolation and see higher rates. Hilsenrath's latest blog took this tail risk off the table, at least for a "considerable amount of time." It is on this, and only on this, that markets rallied. Hilsenrath ingenuously waged a ferocious battle on the windmill and calmed the market. This level of sophistication, to the point of irrational obfuscation, has not been seen in the history of Fed communication. my previous article). It must prepare the market for some flexibility in policy and reassure the market at the same time. This is the source for the chaos in Fed communication. Would it all become clear, or at least clearer, when the FOMC meeting concludes this Wednesday? I highly doubt it would be any clearer than Hilsenrath's blog, except that hearing it from the horse's mouth could help a little. The essential message will remain: We'll try our best to supply liquidity, but you guys had better get used to some uncertainty. Because nobody is seriously expecting tapering to start now, any hint of policy uncertainty would likely be perceived as negative. At the time of publication, Peng had no positions in securities mentioned. Follow @BoPengNY This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.