By James Saft
(Reuters) – The main thing tapering these days seems to be the global economy, punching a hole in expectations that the Federal Reserve will soon start to scale back its bond purchases.
San Francisco Federal Reserve President John Williams said on Monday that the U.S. central bank may in coming months start to ‘taper’ bond purchases, as part of a slow reeling back of monetary stimulus. Dennis Lockhart, president of the Atlanta Fed, held it out as a possibility, saying tapering might be considered as a possibility in August or September but stressed now was not the time.
It may happen, but if it does it will be the victory of hope over data.
Monday also brought news that orders at U.S. manufacturers were sharply lower in May, with a leading survey reporting its worst showing in four years, results consistent with an actual contraction of industrial output. And since the Fed must attempt to manage the U.S. economy in a global context, it is worth noting that this followed just hours after a similar survey in China showed very similar results.
That’s even before we consider the tale told by U.S. data late last week, which showed an economy with weak employment and less support from the supposedly hot housing market, not to mention middling and slowing overall growth.
Even the Federal Advisory Council, a dozen high-level bankers who meet with and, you guessed it, advise the Fed, acknowledged that it may be years before QE can be scaled back.