The taper that wasn’t

The Fed did not follow through with what many thought was a for sure thing.  There was no taper today.  In fact it appears there might not be a taper in 2013.  To say investors were caught by surprise is an understatement.  There was a massive rally in bonds today and provided the rally holds mortgage rates should decline from current levels.  It’s the first time in a very long time that bonds rallied in a significant way.  What was interesting about today’s announcement and the following Q&A session is the concern the Fed has for rising rates derailing the economy. Many loan officers warned that the jump in mortgage rates was going to significantly impact the market which it has.  Considering real incomes have declined (or at best flat) for the last few years  it’s hard to imagine how higher rates would not severely dampen the market.  Mortgage rates should come down over the following weeks and clearly the two most important things to watch are the inflation and job numbers.  With out 2% inflation and strong jobs numbers it appears the Fed has little to no interest in tapering.