Federal Reserve tries to keep its options open

Federal Reserve Chairman Ben Bernanke
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Federal Reserve Chairman Ben Bernanke

The Federal Reserve is trying to keep its options open.

If you want to see how split the Fed is on the whole tapering idea, just look at this tortuous paragraph from the FOMC minutes:

"A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases. At the same time, a few others pointed to the contingent plan that had been articulated on behalf of the Committee the previous month, and suggested that it might soon be time to slow somewhat the pace of purchases as outlined in that plan."

That "contingent plan" was essentially Chairman Ben Bernanke's comments in June: that the Fed's decision to begin winding down bond purchases was "data dependent" and that tapering could begin soon, with purchases concluded by mid-2014.

That "contingent plan" seems to be the benchmark upon which everyone is coalescing.

It indicates they are not split on tapering, they are split on the timing of tapering.

That's why a lot of traders have coalesced around the idea of "taper light": instead of cutting bond and mortgage-backed securities purchase from $85 billion a month to, say, $60 or $65 billion a month, cut to $70 or 75 billion just to start the ball rolling. You can always pick up the pace of tapering later.

There are arguments against this--after all, either the economy is healthy enough to begin tapering, or it isn't--but if the idea is to get as much consensus as possible, it makes some sense. And remember: there is probably a majority who now believe that the negatives of continued bond buying outweigh the positives.

A recent study by the San Francisco Fed that has been widely passed around on trading desks in the last two days found that the effect of QE2 on the economy was transitory at best. That kind of research from one of its own is sure to catch the eye of any fence-sitter at the Fed.

One thing's for sure: the bond market seems convinced that tapering is going to begin in September. 10-year bond yields have rallied late in the day, to near 2.9 percent, putting pressure on stocks.

By CNBC's Bob Pisani

  • Bob Pisani

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