taper / forward guidance twist

Bernanke Takes Away the M&Ms, but Leaves the Snickers Bars by John Cassidy

But what will have most pleased Bernanke is the reaction in the bond markets, where the yield on ten-year Treasuries barely moved at all. Most mortgage rates are tied to these yields. If they had jumped sharply—as they did earlier this year when Bernanke first raised the prospect of a taper—the recovery in the housing market, a key element of the broader recovery, could have been threatened. As things turned out, the bond market had already anticipated the taper, and, at least for now, the housing market is safe.

In fact, things are going pretty much as the Fed chairman had hoped. The markets are calm, and growth and hiring are finally picking up, a development for which the Fed deserves some credit. As Bernanke pointed out, fiscal policy—set by Congress and the White House—has been working in the opposite direction to monetary policy, knocking perhaps one and a half percentage points off G.D.P. growth this year. But we’ve still managed to struggle through with growth of about two per cent. That’s far from great. But without the Fed’s offsetting policy moves, the economy would have been much weaker.