U.S. stocks finished steeply lower on Wednesday, wiping out the prior day's gains and more, as the Federal Reserve opted to stick with its plan to continue to reduce its monthly bond purchases, now down to $65 billion, regardless of recent distress in emerging markets.
"Today's Fed decision to continue with tapering, despite the unfolding turmoil in emerging markets, suggests the Fed has a domestic policy compass firmly in hand. The Fed is sending a clear message that unless a much larger scale crisis emerges, do not expect the Fed to deviate from its current policy path," wrote Jonathan Lewis, chief investment officer at Samson Capital Advisors.
"We would not be surprised to see the Fed increase its tapering to $15 billion or 20 billion at one of its summer meetings, and expect the Fed to be done tapering by the fall should the economy continue on its current path," said Jennifer Vail, chief investment officer for institutional and corporate trust at U.S. Bank Wealth Management.
The yield on the 10-year Treasury note fell to a low of 2.68 percent, its first time under 2.7 percent since Nov. 26.
"The Fed's actions continue to send reverberations to the other economies of the world, and not positive ones. The strength of the dollar, via the taper, is exposing some real weakness in other markets and economies. Keep in mind that all of this could change on a dime and go the other way," noted Kevin Giddis, head of fixed income capital markets at Raymond James.
The Fed decision was expected, with several market observers saying policy makers had little choice.
"If they had paused, they risked sending a signal to markets that they lacked conviction, were slaves to market rather than economic forces and/or were far more worried than the average investor, the latter of which could have caused a fair bit of panic among risk assets. So they did as was expected," emailed Dan Greenhaus, chief market strategist at BTIG.
"The Fed would lose a lot of credibility if they blink over emerging markets. They have to act cool and collected by sticking to their plan of focusing on the U.S. economy. Looking ahead, it makes Janet Yellen's March press conference more interesting," said Peter Boockvar, chief market analyst at the Lindsey Group, of the next Fed chairman.