Boy, it almost doesn't matter what Ben Bernanke says. The market is bound to gripe either way. On the expectation that the Federal Reserve Bank would begin to taper, the market rallied yesterday, sprinting it into new territory when Bernanke he said that tapering would not yet begin.
Today however the market seems to be having second and third thoughts regarding the continuation of quantitative easing.
Here's what's giving traders pause: The market in the 10 year treasury has been signaling the end of quantitative easing since May.
I wrote about this disconnect by the 10 year treasury and the policy of the Fed earlier on this blog. The bond market at least is saying that the Federal Reserve Bank either should end quantitative easing or will end quantitative easing.
Since it's apparent now that the Federal Reserve won't end quantitative easing, then by logic and deduction it must be that the bond market believes the Fed should end quantitative easing.
And the takeaways on that are these: 1) The Federal Reserve Bank believes the condition of the economy is worse than perhaps people are giving a credit for; 2) The bond market at least believes that quantitative easing at this point won't help.
I think that it's a good Federal Reserve chairman who does not take the market by surprise. Clearly traders were surprised by this announcement of the continuation of quantitative easing.
So somebody has the story wrong: either the market or the Federal Reserve. Perhaps even both of them.
But when I see a chart of the last six months of the 10 year treasury interest rate action, it looks to me like some of that will happen within the next couple of weeks that will propel interest rates higher.