On to the Octaper
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The Fed had one message for the pundits today: it’ll taper its asset-purchasing program when itâ€™s ready. Or, rather, when the economy picks up: â€śthe Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,â€ť the Fed wrote, citing â€śfiscal retrenchmentâ€ť and downside risks to the economy.
Economists polled by Reuters expected the Fed to announce that it would taper in September — and repeatedly forecasted tapering would begin this month throughout the summer. But as Bernanke said in todayâ€™s press conference, â€śthere is no fixed calendar schedule. I really have to emphasize that.â€ťÂ Matt Phillips has a great chart of the marketâ€™s reaction.
“The Fed botched its message in June and is trying to undo that mistake,â€ť Jeff Gundlach told Reuters. Matt Yglesias says the Fed has a Mobius strip problem: â€śIf markets think the taper is imminent, you get tight financial conditions and then those conditions become a reason not to taper.â€ť Mohamed El-Erian writes that this speculation certainly wonâ€™t stop now: â€śThe Fed only delayed what many market participants will continue to expect. This will not alter the prospects for the economy in any fundamental manner though it impacts financial markets.â€ť
Ben Casselman runs through all the economic reasons why the Fed thought the economy is still too vulnerable to trim its asset-purchases: things like a shrinking labor force, signs of falling demand in the housing market, and a looming debt ceiling fight. — Shane Ferro and Ryan McCarthy
On to todayâ€™s links: