"Taper talk" could pretty much be dead until next year.
Thanks to the dysfunction in Washington, many Fed watchers now see the first taper in the Federal Reserve's bond buying coming sometime later than expected—certainly not before December but probably in the first quarter. Wall Street had been geared up for the start of a pullback from the easing program sometime this quarter, but a more sluggish economy and fiscal uncertainty make that less likely.
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"One thing we know for sure, as much as we know anything, is that short-term interest rates are going to stay low for as far as the eye can see," DoubleLine CEO and chief investment officer Jeff Grundlach said on "." "Quantitative easing is not even going away. It seems with this budget wrangling, it's going to keep going up."
"It means the credit market is really a safer place than it's been for the last few months," he said.
Since word of a compromise debt deal came Wednesday, bond yields have fallen and the dollar has tumbled, as traders worried the partisan battling would resume around the next set of deadlines for the budget in January and debt ceiling in February. The 10-year Treasury yield dipped to 2.60 percent from its Wednesday morning high of 2.76 percent, and the dollar index lost a full percent Thursday, trading at a nine-month low of 79.68.
(Read more: 'Too tender a moment' to cut QE: Fed's Fisher)
The S&P 500 Thursday, after trading lower early in the day, broke through to a new high in the afternoon in a burst of buying. The S&P 500 closed up 11 at 1733, topping its Sept. 19 high. The Dow, however, finished down 2 at 15371, dragged down by losses in IBM.
"You don't have to worry about the government anymore. A couple of speed bumps are out of the way. There's no way they're going to taper this month and the odds of them tapering in December are low," said Dan Greenhaus, chief global strategist at BTIG. Greenhaus said the stock market also is being helped by other factors, including the fact it is entering a seasonally favorable time of year.
"To the extent you think more (Fed bond) purchases are better than less, and that pushes stock prices higher, then that's supportive," he said.
(Read more: Debt fight cost US economic credibility: Gundlach)
For weeks this summer, markets had been anticipating that the Fed would start to slowly cut back on its quantitative easing program, or the hefty $85 billion in bond purchases it makes each month. Since the spring, Fed officials, in speeches and testimony, had commented repeatedly about the first steps of "tapering" bond purchases if the economy was strong enough. So the first shock to markets was when the Fed decided against announcing tapering in September, citing concerns about financial conditions but also fiscal headwinds.
Now those fiscal headwinds have come to bear, with economists saying the 16-day government shutdown likely took a bite out of the economy's already slow growth.
"We won't know the economic damage done by the shutdown for a while, and we have the uncertainty of what's going to happen with the budget negotiations through January now, and those are the reasons they said in the first place why they had to delay it," said Diane Swonk, chief economist at Mesirow Financial.
(Read more: Gartman: Bond yields going lower)
Swonk said the economy is showing signs of sluggishness, and it is in part because the Fed talk about winding down bond purchases sent rates higher. "We had less momentum in part because maybe the Fed 'mea culpa' and how they explained tapering. Rates backed up," she said. The 10-year hit 3 percent as traders braced for the Fed to start reducing its purchases of Treasury bonds and mortgage-backed securities.
Fed Chairman Ben Bernanke's final meeting is in January, and Swonk said it's a close call whether the Fed starts to reduce bond buying then. "I think that's something he would like to do…January at the earliest but I wouldn't be surprised if it's March or later," she said.
economists say the government shutdown likely shaved a half percent off of fourth quarter GDP, resulting in growth now of 2 percent. But it should boost first quarter by 0.25 percent.
"As far as the Fed goes, we have not really changed our views all that much. While recent events have made 2014 look like the more likely time of the first tightening, we would not rule out December just yet, and think there is about a 30 percent chance the Fed moves then," wrote Michael Feroli, chief U.S. economist at J.P. Morgan. He noted that the Fed's decision not to cut back on bond buying in September was a close call.
(Watch: GDP forecasts lower after shutdown)
Feroli said the "drop dead" date for the debt ceiling is now likely to be April or May, and the real impediment to a Fed move is the economic data. Many economic reports were unavailable during the government shutdown, and markets still await the key employment report from September, . Other data are expected to follow in the next several days.
Adrian Miller, GMP fixed income strategist, handicapped the Fed moves this way: Zero chance of tapering at the Oct. 17-18 meeting; 20 percent chance in December; 25 percent in January, and 40 percent at Yellen's first meeting as chair March 18-19.
Mohamed El-Erian, CEO and co-CIO of Pimco, said on "Squawk Box" that it makes sense the Fed will now put off tapering until Yellen takes over as Fed Chair, so the Fed may now be more accommodative for longer.
"But this notion of taper is less probable now given what has happened," El-Erian said.
(Read more: Political dysfunction causes damage, El-Erian says)
Fed speakers are once again in the spotlight, now that Washington is taking a temporary back seat for markets. A trio of Fed officials participate in a Washington conference Friday on 'Planning for the Orderly Resolution of a Global Systemically Important Bank.' Richmond Fed President Jeffrey Lacker speaks at 8 a.m. ET, Fed Gov. Daniel Tarullo speaks at noon, and New York Fed President William Dudley speaks at 3:40 p.m.
Chicago Fed President Charles Evans speaks at 2 p.m. on the economy and monetary policy at a lunch in Chicago, and Fed Gov. Jeremy Stein speaks in Washington at 4:30 p.m. at a National Bureau of Economic Research conference on addressing financial imbalances at 4:30 p.m.
—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.