What keeps Bernanke up at night is the fear of doing something that will stifle the recovery. Tapering is so unlikely at this point because the market has already risen rates.
US 10-year yields are up 50 basis points from the May lows. Rising yields have pushed the 30-year mortgage rate to the highest in more than a year. Two weeks ago, mortgage applications tracked by MBA fell 11.5%, last week they fell an additional 3.3%. The market is doing the Fed’s work and Bernanke won’t want to make it any worse.
At the same time, the sequester is digging harder into the economy, emerging markets are reeling and inflation is at a 53-year low. The real question is: why would anyone think the Fed is about to taper?
