In the end we didn’t see a massive sell-off. Stocks didn’t tank and Treasury yields didn’t soar (but perhaps anticipated it over the last week). What the market viewed as near-armageddon just this past summer was welcomed with open arms and hands turned inward (metaphorically) indicated buying activity in the market.
What was the dramatic shift? I explain that in another post but in a sense the measure of a taper was always the market’s recognition that it was time. Yes Federal Reserve Board Chairman Ben Bernanke had to throw it out there and market participants had to face the reality that the Fed would eventually reduce its $85 billion in monthly bond purchases like a cold shower. It reacted accordingly and the Fed spent several months talking it off the ledge, explaining that a taper was not a tightening and any move would be dependent on what the economic numbers showed.
The Fed was not only dealing with an aggravatingly slow drip pace of economic and job growth, it also had to deal with a government shutdown and debt ceiling crisis. It was as if Bernanke was a juggler and Congress kept throwing additional bowling pins for Ben to work into his act.
Perhaps there was some recognition from those Congressional leaders who never supported QE3 in the first place that if they really wanted it to end they should become part of the solution instead of part of the problem. The no-drama budget deal accomplished this along with recent positive economic numbers.
Ben Bernanke faced the biggest economic crisis for any Fed Chairman of recent vintage and has had to be extremely creative in crafting Fed policy to address the massive deleveraging in the wake of the 2008 economic crisis. While his job is not complete he leaves with a road map back to normalcy.
After more than five years of this, I wonder if we will be able to recognize what “normal” looks like.