NEW YORK (TheStreet) -- The Federal Reserve meeting this week ensures volatility will reenter equity markets.
Economists have been speculating when monetary stimulus will begin to slow. When it seemed guaranteed the Fed would tighten policy in September, officials caught markets off-guard and continued bond purchases at the current pace. This story line has left many uncertain over what will happen this week, and conflicting viewpoints make volatility inevitable.
Employment data have improved, which has shocked many who thought a government shutdown in October would hurt the economy for the rest of 2013.
That wasn't the case, however, and economists had to reassess their predictions of when the Fed would begin to raise rates. New projections call for a quicker tapering of stimulus, and in anticipation of higher interest rates, many investors have sold long-dated bonds, while commodity prices and emerging-market assets have declined.
Meanwhile, a budget deal in Congress means that fiscal policy may not be as big of a drag on the economy as it once was as a government shutdown in 2014 isn't likely.
The improved fiscal policy takes some of the burden off the Fed. During the past few years, monetary policy has had to make up for uncertain tax rates and reduced government benefits, which hurt business investment and corporate confidence.
Now that the Fed can breathe a little bit, it is more likely to cut stimulus sooner as expanding its balance sheet won't be seen as necessary.