WSJ’s Hilsenrath: September FOMC Meeting “Cliffhanger”
From Jon Hilsenrath at the WSJ: Fed Officials Face Cliffhanger September Meeting After Mixed Jobs Report
Fed officials want to start scaling back their billion-per-month bond-buying program this year and could take a small step in that direction at their policy meeting Sept. 17-18. But the economic data in recent months have been ambiguous and new threats to the economy and markets loom, which could prompt officials to wait longer before acting.
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Many officials believe it matters little in theory whether they start pulling back the program in September or later this year. … But in reality, officials have concluded … it matters immensely what signal investors take from their actions.
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Yields on the benchmark 10-year Treasury notes have jumped from 1.6% in May to nearly 3%
On the “downside risks”, Ethan Harris at Merrill Lynch wrote today:
Perhaps the strongest case for tapering is reduced downside risks. The economy has weathered a fairly big fiscal shock—by our estimates, more than 2% of GDP—with just two bad quarters—0.1% growth in 4Q and 1.1% growth in 1Q. Moreover, stripping out inventories and trade—the two wildcards of GDP accounting—final sales to domestic purchasers follow a similar pattern, bottoming in 1Q, when the tax and spending shock hit. Unfortunately, when Congress returns from its summer siesta on September 9, three major policy risks loom: Syria, the 2014 budget and the debt ceiling. We don’t expect a major shock to the economy, but the Fed will not be sure when it meets September 17-18.
A few months ago I thought the Fed would wait until December, but the upward revisions to GDP and the decline in the unemployment rate has made it less clear. I don’t know how much the Fed will weigh the decline in the participation rate.
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