On to the Octaper

September 18, 2013

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The Fed had one message for the pundits today: it’ll taper its asset-purchasing program when it’s ready. Or, rather, when the economy picks up: “the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Fed wrote, citing “fiscal retrenchment” 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 today’s press conference, “there is no fixed calendar schedule. I really have to emphasize that.” Matt Phillips has a great chart of the market’s reaction.

“The Fed botched its message in June and is trying to undo that mistake,” Jeff Gundlach told Reuters. Matt Yglesias says the Fed has a Mobius strip problem: “If markets think the taper is imminent, you get tight financial conditions and then those conditions become a reason not to taper.” Mohamed El-Erian writes that this speculation certainly won’t stop now: “The 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.”

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 today’s links:

Quotable
“It turns out you could water these down and have them rated by S&P”: Banker, 2013 - DealBook

It’s Academic
“A penny saved is a partner earned: the romantic appeal of savers” – SSRN

Good Questions
How evil should a video game let you be? - New Yorker

The Fed
The Taper, the Forecast, the Plan & the Freakout – David Gaffen
The taper decision as it happened – Reuters Live

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