July 30 (Reuters) – The Federal Reserve carried on its merry
tapering on Wednesday, and though the accompanying statement was
probably rightly viewed as dovish it signals a potential sting
down the road.
For now, Fed policy looks set to continue to support risk
assets, with a less certain and probably less strong impact on
As expected, the Fed cut bond buying by $10 billion per
month, remaining on course to end the program in October.
The real news, which drove a rally in both stocks and
government bonds, was in the statement, which expressed
continued dissatisfaction with labor conditions but also a newly
relaxed posture about the threat of deflation.
Given the laser focus of Yellen and her core of supporters
on underemployment and stagnant wages, that dovish read is
probably about right. Longer term, the shift on inflation might
prove to be more significant.