We expected the Fed to reverse the QE or even start another round of QE when we wrote in June, but we expected the Fed to do so after bad economic statistics start kicking in. However that has not been the case for the past week as the following chart from Zero hedge has shown; the Federal Reserve is not giving forward-expectations based on changing economic statistics but merely on the stock market index. While we acknowledge the mere credibility that the Federal Reserve has had in the economic history of United States, we were still amazed by how desperate on some Fed members (both dovish and hawkish) on protecting the stock market returns for an approximately 10% correction.
The expectations have been changed somewhat, but the fundamentals of the real economic picture of United States has not yet kicked in, which might require some time. Moving forward, are we going to expect something like the following chart to happen again? Very likely. It’s just a matter of times on them “talking” about delaying the QE or restarting the QE (or another form of monetary easing) before it really happens.
Source: Zero Hedge
Disclosure: The author currently does not long any S&P puts at the time of publishing this article.
Update as of December 18, 2014.
This time is Janet Yellen talking about delaying interest rate hike on December 17, 2014 after a 5% drop on S&P 500.