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Markets overreacted to Yellen's six-month comment: FT Alphaville's Garcia

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Did markets overreact to Yellen's comments?

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Did markets overreact to Yellen's comments?

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Stock and bond prices fell Wednesday after the Fed announced its latest policy decision and Janet Yellen held her first press conference as Fed Chair. Markets are back in positive territory Thursday morning.

U.S. stocks lost some ground Wednesday when the Fed announced it was cutting back on its bond-buying program and would no longer use a 6.5% unemployment rate threshold as a determinant for raising interest rates. Then the market dropped even more during Yellen's press conference when, in answer to a question, she indicated that the Fed could start raising short-term rates about six months after the Fed ends its stimulus program.

Related: Fed admits it has 'some work to do': Nariman Behravesh

The Dow fell as much as 1.3% after Yellen's "six months" comment but recovered almost half those losses before the trading day ended.

Cardiff Garcia, U.S. editor of FT Alphaville, tells The Daily Ticker in the video above that the market overreacted to Yellen's six-months comment.

"People are reading a little bit too much into it," he says. "Right after she made the six-month comment she tried to essentially layer it on with caveats...and if you put it into context with everything else she said it was clear she was trying to communicate a very dovish signal."

Related: Fed hawks are "out of sync with the data": Jared Bernstein

Those caveats included the state of the labor market--how close it is to full employment and whether wage growth will pick up from a sluggish pace--and inflation.

"If we have a substantial shortfall in inflation...persistently running below our 2% object that is a very good reason to hold the funds rate at its present range for longer," Yellen said.

So what can we expect from the Fed in the future?

Related: Fed guidance to become more vague under Yellen: Alice Rivlin

"Overall it's really tough to say what's going to happen now," says Garcia. "It may be even a little bit harder to read into exactly what the Fed is thinking unless [Yellen] makes it very clear during these press conferences."

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