Federal Reserve Watching has become a Practice of Semiotics

Will the Fed be "Tapering"? Not from the latest announcement by the FOMC which reveals of the continued dovish non-tapering stance.

From Bloomberg: 

The Federal Reserve said persistently low inflation could hamper the economic expansion and pledged to keep buying $85 billion in bonds every month.

“The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Federal Open Market Committee said today after a two-day meeting in Washington. Growth will “pick up from its recent pace.”

The Fed continues to use evasive language which has led the markets to second guess their prospective policy actions. Such seem as signs of the Fed’s deepening confusion (or looking to justify further easing)

Fed officials seem to acknowledge how the financial markets have become acutely or deeply dependent on them. 

During the recent selloffs which had the markets focusing on the ‘taper’ aspect of the Fed communiqué (while ignoring the dovish part), central bankers immediately acted to rectify what seems as a policy communications blunder.  

Such has even prompted concerted actions by ex-US central bankers as the BoE’s Mark Carney and the ECB’s Mario Draghi to introduce “forward guidance” policies which assures of the lower levels of interest rates “for an period of time extended period of time”, as part of the damage control on the Fed's communications. 

Just a week back Dr. Bernanke laid the cards with “If we were to tighten policy, the economy would tank.”

Still the consensus position has been that the Fed will taper in September. 

So central bank assurances has once again fired up the Pavlovian or the stimulus addicted equity markets. Most of Asian markets have been in green, as of this writing (Bloomberg).

The odd thing is that despite the FOMC’s dovishness, these has hardly made a significant dent on the US 10 year UST note yields. Yes, last night yields of 10 year UST fell from a high of 27 and closed the session down by .38%, yet the interim trend has been a rising one.

Assurances of central bankers of low interest rate environment may have partly stabilized bond markets of major economies such as 10 year UK bonds, 10 year German bonds, 10 year French bonds or 10 year Japanese Government Bonds, but they remain elevated. Immediate trend of these bond yields, like the US counterpart, have even been creeping upwards during the last week.

So the bond markets seem hardly convinced of the efficacy of the Fed’s or other central banker's position of maintaining an extended low interest rate environment.

And as I have been saying, the Fed has only repackaged “exit” communication strategies since 2010 as du jour “tapering”. This for me looks like the Fed's serial ‘Poker Bluffs’. And should there be any possible realization of “tapering” such will signify as tokenism, as these would partially be designed to realign monetary policy direction with actions in the bond markets in order to safeguard the central bank’s “credibility”. QE will continue and may even be broadened when financial markets suffer another bout of convulsion.

Fed watching has become a practice of semiotics or (dictionary.com) “study of signs and symbols as elements of communicative behavior”. 

Unfortunately, such dependency on the Fed and central banks, reveals of how broken financial markets have been.