Update: Markets Comeback As Fed Downplays Taper Talk

Stocks and bonds have made a tremendous comeback this afternoon, with markets attempting to make a push into positive territory during the last hour of trading. Markets began paring steep losses after several Fed officials issued dovish comments downplaying talk of tapering asset purchases.

The DJIA was down nearly 250 points earlier in the session, hitting an intraday low of 14,551.27 (currently at 14,742). Similarly, the S&P 500 dropped as low as 1,560.31 (currently at 1,583). The selling began overnight as the People’s Bank of China failed to alleviate credit crunch concerns.  China’s Shanghai Composite dropped 5.3%, falling into a bear market. Meanwhile, interest rates have been surging.  The 10-year Treasury rate went north of 2.6% for the first time in years, but have since fallen back to 2.531%.

Fed Officials Downplay Taper Talk:

Minneapolis Fed President Narayana Kocherlakota – Kocherlakota isn’t even a voting official this year but felt compelled to put out a statement earlier, and hold a conference call, defending the central bank. He insisted the Fed did not become more hawkish, and said that as a supporter of bond purchases, he was in a position to make that case. He stressed that he was not speaking for the Federal Open Market Committee as a whole; in fact, he said it would have been a “tough” vote, since he thinks the Fed needs to clarify its intentions more when it stops buying bonds.

Dallas Fed President Richard Fisher – Fisher likened the market participants to “feral hogs” and said the central bank knew the market wouldn’t like what was coming. “Markets tend to test things,” Fisher told the Financial Times. “We haven’t forgotten what happened to the Bank of England [on Black Wednesday]. I don’t think anyone can break the Fed … But I do believe that big money does organize itself somewhat like feral hogs. If they detect a weakness or a bad scent, they’ll go after it.” Fisher said the central bank members fully understood there would be a significant market reaction to the notion bond buying could stop next year.

New York Fed President Bill Dudley – Dudley, speaking in Switzerland to the Bank for International Settlement’s annual meeting, said the U.S. has fallen short of its employment and inflation objectives. “This suggests that with the benefit of hindsight, U.S. monetary policy, though aggressive by historic standards, was not sufficiently accommodative relative to the state of the economy,” Dudley said.

Fed Speakers Later This Week:

Wednesday, June 26

  • 10:00 Fed’s Fisher, Lacker testify on financial regulation to House Financial Services Committee

Thursday, June 27

  • 10:00 a.m.: Fed’s Dudley speaks on labor market in New York
  • 10:30 a.m.: Fed’s Powell speaks on monetary policy in Washington
  • 12:30 p.m.: Fed’s Lockhart speaks on economy in Marietta, Ga.

Friday, June 28

  • 8:00 Fed’s Stein speaks on monetary policy in New York
  • 9:15 Fed’s Lacker speaks on economic outlook in White Sulphur Springs, W. Va.
  • 12:00 Fed’s Pianalto speaks on monetary policy in Wheeling, W. Va.
  • 3:30 p.m.: Fed’s Williams speaks on monetary policy in Sonoma, Calif.

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