The US Federal Reserve stunned the global financial markets last night as it opted to keep its quantitative easing programme going at $85bn a month despite widespread expectations that it would take the first step towards "tapering" it down.
How is this really a surprise? The minute the Fed announced back at the beginning of the summer that the party was the over, the markets went into a deep depression (spiritually, not economically); emerging markets are seeing a pullback already of the tsunami of liquidity that sloshed their way (and they're none too happy about it, see India's response at the G-20); and everyone decided to gird up their loins for the inevitable bubble burst that was coming.
But, shock and dismay, continued weak jobs number came in - as a digression, do you think Helicopter Ben might one day think the causality runs from monetary easing to poor economic performance, and not the other way - and since the Fed has explicitly said that employment is now a target, what could have happened? This is no shock - and, like protectionism, the more the markets get addicted to easy liquidity, the harder it is going to be to break it. Mark my words, we've got trouble ahead.