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.

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