As the U.S. government reopens for business, investors’ eyes have already shifted back to the Federal Reserve’s monetary stimulus program. The dust has temporarily settled in Washington, but the looming threat of another political catastrophe means that the Fed’s hands may be tied until next year.
Fed chairman Ben Bernanke’s talk of “tapering” in June gave rise to speculation that it would begin as early as September. Now, however, observers are expecting a change in policy to be much further off. In Thursday’s market session, the first after the end of the shutdown, the U.S. dollar plunged to eight-month lows, Treasury yields dropped to two-month lows, and the S&P 500 reached an all-time high. Clearly, markets are betting the Fed will delay withdrawal of its bond-buying program.