Fed's decision to keep pumping money buoys markets

The central bank will keep stimulating the economy through its bond-buying program, which was a pleasant surprise to Wall Street. The Fed had signaled earlier this year that it might taper its purchasing program, but the prospect of another Congressional impasse over government spending - a key component of the economy - apparently played a part in deciding to stay the course. Tellingly, Fed Chairman Ben Bernanke said during a news conference that the Fed's ability to offset problems created by Congress is "very limited." With 30 minutes to go, the Dow was up around 150 points, an all-time high. The Treasury market is also taking off. Here are some takeaways:

From NYT's Annie Lowrey:

Thus far, Ben S. Bernanke's comments have been very dovish, making a strong case against tapering and hardly a case for it, though he said a change in Fed policy was still on the horizon. That might call into question the effectiveness of the Fed's communication policy in clarifying the central bank's thinking to investors. Markets clearly believed that the Fed would announce the taper this month. Their surprise has meant that stocks have shot up to new highs on the news that economic data still is not strong enough for the Fed to take its foot off the brake. But Mr. Bernanke, in the news conference, defended the strategy of starting to talk about the taper in June, saying that surprising the markets by not doing so would have been worse.

From WSJ's Michael Derby:

On a number of different fronts it feels like Fed Chair Ben Bernanke is backing away from its past comments expressing confidence the Fed can start trimming bond buying this year. He says it's still "possible" to taper later this year, but he drives home that "there is no fixed calendar schedule" for central bank action. That contrasts with a plan he laid out earlier in the year the taper could start this year and wind up by next year. He also backed away from saying 7% is likely the jobless rate that will bring the bond buying effort to a close. He now calls this jobless rate an "indicative number." Mr. Bernanke seems to be showing a Fed that is in no hurry to slow the pace of stimulus.

Even though growth keeps disappointing, the Fed sees unemployment on track to keep falling to between 6.4% and 6.8% in 2014, between 5.9% and 6.2% in 2015 and between 5.4% and 5.9% in 2016. There are two important points related to these projections: 1) Fed officials are getting increasingly used to the idea that the economy doesn't need to generate as much output as they have expected to reduce unemployment. That's in part because the labor force isn't growing as fast as it used to grow. 2) Their 6.5% unemployment threshold looks like a very soft target. The Fed has said it won't even start talking about raising short-term interest rates until the unemployment rate hits 6.5%. Their own projections show the jobless rate near 6.5% by late 2014, but rate hikes not starting until 2015. The means you can prepare yourself for a long conversation at the Fed - months long - about raising rates after the 6.5% unemployment threshold is touched.