EM crisis? Soft payrolls? Tapering is on

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The Federal Reserve's decision on Wednesday afternoon to taper its monthly bond purchases, for the second month running, was in line with expectations.

The market reflected this, with shrugs. Though the S&P 500 fell about 10 points soon after the decision was made, it rebounded just as fast. The yield on the 10-year Treasury bond held steady, at 2.69 per cent. And gold traded within a $10 (U.S.) band, but was little changed (at $1,265 an ounce) within an hour.

The consensus among economists is now emerging. Yes, emerging markets are looking volatile right now, but the Fed is unlikely to waver from its course of withdrawing stimulus unless something really bad happens. And the Fed continues to see the U.S. economy making further progress, even after last month's disappointing report on jobs growth.

Here are several snippets from economic notes on the Fed's decision.

Ian Shepherdson, Pantheon Macroeconomics: "The clear Fed default position is that tapering will continue; it would take serious U.S. weakness or a real EM disaster to make the FOMC pause."

Stéfane Marion/Krishen Rangasamy, National Bank Financial: "The Fed remains steadfast in its objective to end QE by year end, and at this point it doesn't seem all too bothered by the recent stress in emerging markets. But that could change, considering the importance of those economies which account for over 50 per cent of global GDP according to the IMF. Regardless, expect the Fed's actions to continue to foster an environment of heightened financial market volatility."

Martin Schwerdtfeger, Toronto Dominion Bank: "If anything, the sell-off observed in recent weeks across emerging markets has contributed to bring down U.S. Treasury yields, which are now 30 basis points lower than at the end of last year. This gave the FOMC even more room to proceed with tapering, as – on the margin – domestic financial conditions have turned more accommodative."

Avery Shenfeld, CIBC World Economics: "The payrolls softness didn't change their thinking, as they judged the trend as one of "further improvement". Note that even at 6.7 per cent, they say the unemployment rate 'remains elevated' and repeating its view that they will not hike the funds rate until the jobless rate is 'well past' 6.5 per cent."

Michael Gregory, BMO Nesbitt Burns: "The bar to stop tapering is high, particularly if the broader economy continues to boast decent growth."

Paul Ashworth, Capital Economics: "The problems in emerging markets didn't even warrant a mention in the statement accompanying the FOMC's decision. Indeed, the surprise is that statement was notably more upbeat on the economic outlook. It notes that economic growth had 'picked up in recent quarters' and that consumption and business investment had 'advanced more quickly in recent months.'"

Dawn Desjardins, Royal Bank of Canada: "Given the significant amount of excess capacity in the economy, it is likely that the inflation rate will remain below the Fed's target until late 2015 at which time policymakers will begin the process of tightening monetary policy by raising the fed funds target band. That said, the improvement in the economy is recent quarters will keep the Fed on course to implement its slow policy stimulus reduction plan over the year ahead."