The stock market was upset by Fed Chairman Bernanke’s statement that he might let the Fed’s quantitative easing bond purchases taper off as the economy improves. The market’s view was apparently that a good economy was worthless; all that mattered was the Fed-supplied QE stimulus.
While the Fed was supplying stimulus through its purchases, the Congress was applying austerity through the sequester, slowing the economy by reducing government spending on many programs. I would not blame Bernanke if he has gotten tired of trying to save the American economy single-handedly, while the idiots in Congress, especially the House, are trying to bring back the Great Depression. The economy must be somewhat better, or Congress would have killed it, but it was not ready for Congress to start beating on it with a stick. So, I would guess that Bernanke will be happy to walk away from this mess, but he may want to start to unwind QE so that he does not get blamed if his successor does not do it right.
This may mean that he will have to start unwinding it a little earlier than he would like to. If that is the case, then the market may be right that there will be some rough patches ahead, as Bernanke begins to withdraw his first aid while Congress continues to inflict harm on it.