By Greg Peel

The Dow rose 147 points or 1.0% while the S&P gained 1.2% to 1725 and the added Nasdaq 1.3%.

The US economic recovery is too slow. Buy!!

Ben Bernanke gave the impression at his press conference last night he didn't quite see what all the fuss was about. No one ever confirmed tapering would begin, he pointed out. The FOMC always said it would come down to the data. No one should be surprised.

Surprised? Wall Street was gobsmacked. But was it just the power of collective market psychology at work? Did Wall Street simply talk itself into tapering without any help from the Fed?

It was back in June when the Fed first raised the possibility of tapering. Back then, US economic data, and particularly jobs data, were looking healthier. More recently the data have not looked quite so promising. On the basis of the interim Fed statements, Wall Street should have been more inclined to believe there would be no tapering just yet. But Wall Street decided that the Fed was tipping off the market to allow time to adjust to the idea of the winding down of stimulus. Having put the idea out there, the Fed had already made the decision, Wall Street assumed.

The bulk of Fed-speak in the meantime, from the various Fedheads voting and non-voting, was never definitive yet leaned towards tapering beginning sooner rather than later. In the end, the FOMC voted 9-1 to hold off. The committee's primary concern is the recent rise in mortgage rates, which it sees as potentially stalling the economic recovery.

And why, one might ask, have mortgage rates risen? Because the Fed flagged tapering and the market adjusted accordingly. Hence last night the US ten-year bond yield crashed 14 basis points to 2.71%. The thirty-year bond yield fell 8bps to 3.75%. Mortgage rates will now come down again.

Does that mean tapering will be back on the cards? One is reminded of Spain. A year ago the ECB said it would bail out Spain if needed, and Spain said it would only need to be bailed out if bond yields rose. Bond yields didn't rise because the ECB was standing ready. Subsequently, Spain has never asked for a bail-out.

The Fed won't start tapering if bond yields are too high, but they're only high because the Fed might start tapering. How on earth do we get out of this conundrum?

One thing we can deduce from last night's market responses is that Wall Street did not think the US economy was ready for tapering yet either. It had simply resigned itself to the fact tapering would start. On the promise of ongoing stimulus, the S&P 500 has created a new all-time high. They bought it when they thought tapering was inevitable, and they have bought it again now that tapering is postponed. When do they sell? Would they have sold last night if the Fed announced a US$10bn reduction?

This is one reason why many in the market are now appalled. The anti-QE brigade thought their day had finally come, but it wasn't to be. The US economy will continue to run on artificial stimulus and not be allowed to stand on its own two feet. Many believe the US economy can recover faster if the Fed just got the hell out of the way. Whether or not QE is necessary or restrictive, an even more fundamental problem has been created by the Fed not tapering. We are going to have to keep talking about this, will they-won't they, for perhaps another three months or even longer.

Shoot me. And how will Wall Street respond to the data now? A big sell-off on a great jobs number?

The US dollar index has tanked as one might expect, dropping 1.3% to 80.14. The victim is the Aussie, which is up 1.8% to US$0.9520. The beneficiary is gold, which is up US$53.90 to US$1364.40/oz. That's only 4%. Silver is up nearly 6%. There are quite a few shattered shorts this morning.

Brent crude is up US$2.75 to US$110.67/bbl and West Texas is up US$2.69 to US$108.11/bbl. The LME closed pretty much as the Fed statement hit the wire, although copper is up 1.7%. Spot iron ore rose US60c to US$131.70/t.

The SPI Overnight is up 61 points or 1.2%. A new post-GFC high is in the offing for Bridge Street today.

For those who understand such things, let's just say it's not a great day to be short gamma. SPI futures and options and physical index options expire today. The RBA will issue its September quarter bulletin in which its concerns over a return to too-easy bank lending will be expressed.

New Zealand will release its June quarter GDP today and Chinese markets will be closed today and tomorrow.

And so we go on.