30 Oct 2013
A March taper would take a remarkable acceleration of US growth
FXstreet.com (London) - While there remains a rump of market watchers calling a March taper, even that now seems optimistic.
Running into the August FOMC meeting, markets prepared for a relative tightening of Fed policy through a reduction in the size of its USD85bn-a-month asset purchase programme. But the September taper was nixed by Fed chairman Ben Bernanke, citing the fragility of US growth and weakness of the labour market.
And since then economy has lost even more momentum. It was first set back with the debt ceiling squabbling that led to the first US government shutdown in 17 years, and has been followed by poor consumer confidence surveys and weak private sector job growth.
And it is very difficult to see any acceleration in US growth or a boost in consumer confidence. October consumer confidence was at its lowest level in two years. Advance retail sales were down. Durable goods were down.
In addition, the bickering and the bitter partisanship that lead to the government shutdown has not been resolved. The GOP were conclusively beaten by Obama and Democrat resolve in their efforts to tie any raising of the debt ceiling to a cut in spending and a delay in the implementation of Obamacare. They did not walk away from the debt ceiling battle wanting to avoid a future stand-off, but rather wanting to win the next one. And when the current extension expires on 7 February, it could well lead to another shutdown, and another knock back in consumer confidence.
When the Fed meets in March it will take a remarkable acceleration in the US economy to move the ultra-cautious FOMC to remove some support from the economy, especially with the dovish Janet Yellen freshly installed as chairman. And it is hard to see that happening based on current US momentum.
Running into the August FOMC meeting, markets prepared for a relative tightening of Fed policy through a reduction in the size of its USD85bn-a-month asset purchase programme. But the September taper was nixed by Fed chairman Ben Bernanke, citing the fragility of US growth and weakness of the labour market.
And since then economy has lost even more momentum. It was first set back with the debt ceiling squabbling that led to the first US government shutdown in 17 years, and has been followed by poor consumer confidence surveys and weak private sector job growth.
And it is very difficult to see any acceleration in US growth or a boost in consumer confidence. October consumer confidence was at its lowest level in two years. Advance retail sales were down. Durable goods were down.
In addition, the bickering and the bitter partisanship that lead to the government shutdown has not been resolved. The GOP were conclusively beaten by Obama and Democrat resolve in their efforts to tie any raising of the debt ceiling to a cut in spending and a delay in the implementation of Obamacare. They did not walk away from the debt ceiling battle wanting to avoid a future stand-off, but rather wanting to win the next one. And when the current extension expires on 7 February, it could well lead to another shutdown, and another knock back in consumer confidence.
When the Fed meets in March it will take a remarkable acceleration in the US economy to move the ultra-cautious FOMC to remove some support from the economy, especially with the dovish Janet Yellen freshly installed as chairman. And it is hard to see that happening based on current US momentum.