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Fed hits a home run! Stocks rally on taper verdict

Wednesday, 18 Dec 2013 | 3:56 PM ET

In my prior Trader Talk note this afternoon, I noted that the Volatility Index was not showing signs that the market was afraid of a modest taper.

I concluded by saying, "The market is telling the Fed, you are managing our expectations well, right now. Don't screw it up."

This afternoon, with the Fed statement, Ben Bernanke not only did not screw up, he hit a home run. At least a triple! The VIX is down 11 percent!

A trader uses his mobile phone as he works on the floor of the New York Stock Exchange on Wednesday.
AP
A trader uses his mobile phone as he works on the floor of the New York Stock Exchange on Wednesday.

(Read more: Here's what changed in new Fed statement)

Stocks are rallying because:

1) The Fed is finally starting to convince many that tapering does not imply tightening. It emphasized that low rates will be appropriate "well past the time that the unemployment rate declines below 6.5 percent," especially if inflation remains below 2 percent.

Bernanke: Will remain data-dependent
CNBC's Steve Liesman asks Federal Reserve Chairman Ben Bernanke whether the U.S. can expect bond purchase reduction increments of $10 billion going forward, and why Bernanke does not announce an ideal unemployment number.

2) The Bernanke put is still in place. The Fed statement emphasized that asset purchases are not on a preset course, it is still data dependent.

(Read more: Fed taper positivesign for economy, bad for bonds)

Further action depends on the outlook for jobs and inflation. If you believed the Bernanke put was a factor in keeping a floor under stocks for the last few years, you can argue that Bernanke/Yellen are making the same promise for 2014.

By CNBC's Bob Pisani

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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