I particularly like one reason offered in in this post.
"The bond markets aren’t so frothy any more It’s never been fully appreciated that one reason Bernanke started to talk about the taper was to rein in speculation in the bond markets. Wall Street had been stocking up on US government bonds, betting that interest rates would be low for a very long time. Bernanke’s worry was that when the taper finally came, the sudden drop in the
bonds’ values could sink a key player that held too many of them."
Sure sounds a lot like Constructive Ambiguity, a position I advocated two years ago near the inception of this blog.
Several authors point out that credit conditions had been harmfully tightened just by the mere mention of tapering. (Counterprogramming Money Illusion doesn't think so.)
This is what I said in April 2012,
"I am less sanguine about the Fed's ability to manage expectations. The anchoring of expectations depend on the Fed (reversing) liquidating the holdings it acquired under QE. It is therefore likely that the Fed will have to sell its bond holdings at precisely the time when inflationary expectations are rising and therefore the yield curve is moving up. This will push yields up even faster (in a nonlinear fashion i) and will almost certainly be a significant drag on economic activity. Should this event occur in the next 24 months before the economy has had a chance to stabilize the Fed will have to make a Sophie's choice and may be tempted into thinking it can fool all of the people all of the time. My guess is that when eventually the Fed will be forced to make some very unpleasant trade-offs and bond market volatility and tail event outcomes are very likely. What the Fed will choose is not apparent so it makes playing the scenario difficult.
Here is what the Fed said yesterday:
"The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market."
To quote the Godfather Michael Corleone: Just when I thought I was out... they pull me back in."
See Zerohedge's take on this here. They link to a 2010 analyst report that suggests that the Fed is caught in an infinite loop
1) Print money
2) Keep printing until the financial system stabilises
3) Worry about removing liquidity later (and if removing liquidity stresses the financial system, go back to step 1)