A few thoughts:
-Even after a $10Bn monthly decrease, the Fed is still on pace to grow its balance sheet by $900Bn per year
-My view is that this move was really a token gesture, so that Bernanke could exit office having done something that resembles prudence
-The reaction of the stock market, to shoot upwards, is only emblematic of the goldilocks crowd, detached from the realities of hard data. Rates went down but then crept back to 2.89%. That trend continues to be up and the disconnect between equities and fixed income will not last indefinitely
-People like to say that QE has not been inflationary, and that all those newly-created reserves just sit at the Federal Reserve doing nothing. If that’s really the case, then why not start to unwind, since they have no impact. But, obviously, their existence has some significance. Clearly, not only can no unwind occur, but it continues to be important to grow the volume of those idle dollars
-Eventually what has been done today will be undone, and in magnitude greater than $10Bn
And, no, I’m not in denial about where things are. I’m just convinced that the majority is.
