Trader Talk

No taper! Did Bernanke fool the Street?

Fed Chairman Ben Bernanke, speaking at a news conference, is seen on a TV screen on the floor of the New York Stock Exchange.
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No taper! When was the last time so many were so wrong?

This morning, I listed three reasons why the trading community was convinced the Federal Reserve would begin tapering. Let's look at them again and what Chairman Ben Bernanke said about each:

First, unemployment gradually declining. Bernanke, in his press conference, acknowledged that the unemployment rate was declining.

Fed keeps bond-buying program intact

Second, not tapering would indicate a cautious outlook on the economy. He does indeed seem more cautious. Bernanke said, "The economic data does not yet provide sufficient confirmation" to warrant reducing purchases. The Fed also reduced its 2014 economic outlook, as well as 2015.

Third, Bernanke wants to begin tapering while he is chairman. Mr. Bernanke did not address this issue, but when he was pointedly asked by our Steve Liesman about his future plans, he declined to comment. If this theory is true—that Mr. Bernanke is looking to the future and his legacy, and he wants to be able to say he started tapering while it was on his watch—these developments must be very frustrating for him.

But several traders said that Bernanke was also worried that he may make an even bigger mistake: "Ben is not going to make the same mistakes as Japan," John Spallanzani told me, referring to Japan's disastrous efforts to raise interest rates several years ago, which derailed a modest recovery.

Did the Fed lead people on? A lot of traders have lost money today, since many were flat to short the market. These traders are mad. The Fed did not communicate its intentions clearly enough, they contend.

I don't believe that. The market misread the Fed. The market convinced themselves that even though the data was weak, it was still strong enough to warrant a modest taper. Heck, even I convinced myself that a modest taper was likely.

But the Fed has always insisted it was data-dependent. It just gave very vague guidance.

Will this not lead to calls for more explicit communication? Sure. Bernanke, in response to a question from Greg Ip, said, "We are discussing how we might clarify the guidance on the federal funds rate." He specifically mentioned having a floor for inflation.

But what the market really wants is a blueprint for exactly what they will be doing in the coming months. The Fed can't do that, not when you're dealing with something as complex as the U.S. economy.

Finally, kudos to my colleagues Maria Bartiromo and Bill Griffeth, two of the few who thought the Fed would not taper.

By CNBC's Bob Pisani