Citi currency analyst Steven Englander explains why the market is surging on the news that the Fed will scale back its pace of asset purchases. Here’s the sentence, and then below the explanation:
The Fed Statement is being viewed as a very dovish tapering — small reduction in purchases, indication weakening of unemployment trigger, UR trigger now conditional on inflation, no date for end.
So let’s break down what that means:
— The reduction in purchases is very small.
— The Fed has said in the past that it would not consider raising rates until the unemployment rate fell to 6.5% but today the language is indicating that they’ll wait until unemployment falls significantly below that before they consider raising rates.
— The Fed will not raise rates as long as inflation is super-low.
— There’s no target date to ending QE, even though the taper has begun.
That’s why the Dow is up 200.
For LIVE coverage of Bernanke explaining his decision, see here.