Thursday Evening Must Read: The FOMC's Growing Desire to Cut Back Its Stimulative Policies Even without Higher Inflation or Improving Employment
Tim Duy: Desperate to Taper:
The minutes of the October FOMC meeting leave little doubt that the Fed increasingly desires to end the asset purchase program, enough so to contemplate tapering regardless of seeing satisfactory improvement in labor markets.... The discussion of the specifics of the asset purchase program began with: 'During this general discussion... participants reviewed issues specific to the Committee's asset purchase program. They generally expected that the data would prove consistent with the Committee's outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.' The mythical taper--just a few months away. And it will always be just a few months away given the broad weakness in the labor chart. Recall the Yellen Charts:
Unless they narrow their focus to only the unemployment rate, the argument to taper is challenged to say the least. It is even more challenged considering inflation indicators. Knowing that the data continuously refuses to cooperate, the Fed explores plan B: 'However, participants also considered scenarios under which it might, at some stage, be appropriate to begin to wind down the program before an unambiguous further improvement in the outlook was apparent...'
