Thursday, March 20, 2014

Yellen's "September" Moment? -Xavier Urpi market reaction

When Janet Yellen defined “considerable time” between the end of tapering or QE3 and the first rate increase to mean “six months or that type of thing”, we had Yellen’s “September” moment. Remember what happened to Ben when he mentioned that they may begin to taper in “September”? The chart below tells that story for equities. Thank you Bloomberg!

If the taper ends in October, then that means that the rate increase comes around April, 2015. The market had been expecting late 2015 or early 2016, so this surprised/spooked most investors. I just find this more misleading that clear. Why? The FOMC reduced their average GDP forecast by 0.1% for 2014 and 0.5% for 2015. Are they assuming that the rate increase  will slow down the economy? They did not raise their inflation expectations for the same time period, so what are they thinking?

One item is for certain, the more clarity they articulate (or so they think), the more confused we get and the more erratic the markets become.

My take. Buy.

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