To be blunt: not much, at least in the short term. But that doesn’t make Wednesday’s move any less noteworthy. The Fed’s decision to only gently taper stimulus – all while noting that it won’t touch interest rates – effectively preserves the status quo for now, which is good news for some Wall Street workers and rather lousy news for others.
The Fed on Wednesday said it would pare down its $85 billion-a-month bond buying program by $10 billion starting in January. But it was also clear to point out that short-term interest rates would remain near-record lows well after the bond-buying program is completed, meaning the “rigged” market, as some stock pickers have called it, is still very much on. The Dow Jones Industrial Average was up nearly 2% on the day as it became clear the Fed’s market-friendly policy will remain intact.
“The timidity of the move shows that they're not that confident to remove the punch bowl and the party in bubble markets will carry on,” said Chris Apostolou, a former economist who’s now the managing director at London-based Arbitrage Search and Selection.
Indeed, the winners should keep on winning, at least for now. Those working in equities and equity capital markets should continue to fare well come the New Year, said Richard Lipstein, a former mergers and acquisitions banker who now works as a managing director at Wall Street search firm Gilbert Tweed International.
Traders, particularly in fixed income, will likely carry on suffering knowing that the current rate environment that’s been stifling trading revenue will remain for at least two more years. Lenders too remain in purgatory.
“This is akin to prescribing smaller doses of medication as the patient gets better, for fear if you don’t wean them off you’ll never know if they are actually getting better,” Lipstein said.
In short, change will come eventually but the “rigged” market and all that comes with it will remain for some time. Plan accordingly.