Sunday, December 15, 2013

Markets Await Unlikely Fed Taper

I'm getting bored with the endless chatter in financial media about whether the Fed will taper its quantitative easing program.  The next FOMC meeting is December 17-18 and I expect it to be much like the last several meetings.  Any committee members favoring a taper cannot point to renewed economic strength as justification.  The members favoring continued QE do not want to encumber the next Fed chair, Janet Yellen, with the market consequences of a tapering decision made prior to her term.  I do not expect the FOMC to announce a taper this week.  Read the minutes from the FOMC's last meeting in October.  Only one member voted for a taper.  The doubts that other members may express in the media from time to time count for little when they actually meet to decide policy.  Janet Yellen voted in favor of continued QE.  That tells us what we need to know about how she will articulate Fed policy as its next chair.

Remember that the Fed's policy is very much is line with the monetary stimulus efforts of almost every other central bank in the developed world.  Turkey's monetary policy has been slightly out of step with the Fed's lead because it doesn't want a US taper to destroy its own currency.  Memories of the Arab Spring are still fresh in the more developed parts of the Islamic world, and many analysts (including me) traced Arab unrest to inflated food staple prices that the Fed's stimulus helped create.  Australia, Canada, and New Zealand are among the few countries blatantly ignoring the Fed's multilateral QE consensus.