The Chaos in the Federal Reserve's Communication

Tickers in this article: GLD SPY TLT
NEW YORK (TheStreet) -- The confusion around whether and when the Federal Reserve will start scaling back quantitative-easing purchases of Treasury and agency bonds has persisted for months.

The Fed's designated leaker, The Wall Street Journal's Jon Hilsenrath, blogged last Thursday that the Fed will not raise rates for a long time but will only scale back.

OK, finally, this ought to clear up things!

Markets in all asset classes rallied: stocks (SPDR S&P 500 Index ETF ); bonds (iShares Barclays 20+ Year Treasury ETF ); and gold (SPDR Gold Trust ETF ).

Notably, markets had gone up, with no discernible driver, before Hilsenrath's blog came out at 3:39 p.m. EDT at which point everything started going up with abandon.

But, on deeper scrutiny, this only adds to the confusion about the market's expectation of and reaction to the Fed's future action. Any time that stocks, bonds and gold move in synch, you can be sure the driver is excess macro liquidity.

This is the key difference between RORO (risk-on, risk-off) and TOTO (taper-on, taper-off). Since Hilsenrath pretty much confirmed that the Fed will taper, shouldn't the market panic?

I mean, who had seriously thought raising rates was even on the table? I had been watching the pundits closely before and rechecked afterward only to confirm my earlier conclusion: If anyone had been worried about raising rates, he did a much better job hiding it than the NSA on snooping. Sure, rates had been rising, but that could arguably be better attributed to expectation of tapering.

This had puzzled me a great deal. A move so unanimous and vast must have its logic whether you agree with the logic or not, and I must have missed something.

The most probable reconciliation I could come up with is extrapolation and uncertainty. Since the beginning of the year, out of the blue various Fed governors started talking about tapering, though notably missing from the taper talk were the most prominent figures in the Fed, namely Chairman Ben Bernanke, Vice Chair Janet Yellen, and New York Federal Reserve Bank Governor Bill Dudley.

Then Bernanke denied it before he confirmed it at his congressional testimony on May 22. Even Hilsenrath flip-flopped a few times on this topic. Fed communication on this whole taper thing is a mess.