The rise in interest rates that occurred from May to September wasn’t entirely unwelcome. “To the extent that some of the riskier, more levered positions have been eliminated, I think that makes the situation more sustainable,” Bernanke said Sept. 18 after the surprise decision not to taper.
“It wasn’t that the economic conditions had changed; the markets were perceiving that Fed officials were seeing the bubble-like conditions they were causing,” Stanley said. Policy makers have “gone back to where they were earlier in the year where it’s just about the economy.”
Bernanke defended his communications on Nov. 19, saying the September FOMC decision was “appropriate and fully consistent with the earlier guidance.” While he’d said in June the central bank might trim its purchases this year and halt them altogether by mid-2014, he had “also emphasized that the path of purchases would depend on incoming data and could be slower or faster than envisioned,” he said in a speech. “I noted that the pace of purchases could be increased for a time, if warranted.”
Policy makers’ efforts to underscore the link between economic data and the level of monetary accommodation makes it unlikely the Fed will adopt a proposal to accompany any tapering decision with a timetable, according to Silvia. Atlanta Fed President Dennis Lockhart, Dallas Fed President Richard Fisher and Charles Plosser of Philadelphia -- none of whom vote on policy this year -- all have endorsed the idea of a schedule.
“If you’re going to say you’re data-dependent, then to give me a calendar -- you’re going to have trouble,” Silvia said. “Stop being so specific. You don’t have everything under control, then you over-promise and under-deliver.”
The Dec. 6 jobs report prompted Ward McCarthy, chief financial economist at Jefferies LLC in New York, to forecast a “gentle” taper of $5 billion a month starting in December. McCarthy had correctly predicted the FOMC would maintain the pace of its quantitative easing in September, though he wondered in a note to clients at the time if he was “putting too much emphasis on current economic conditions.”
The “data really does argue for them to do something,” McCarthy said in Dec. 6 interview on Bloomberg Radio. “The unemployment rate is within half a percentage point of a level that at one time they told us would trigger raising rates, and they haven’t even started tapering yet.”