Who will begin unwinding the Fed's $85-billion-a-month bond-buying program: Ben Bernanke or Janet Yellen?
Bernanke initially thought that he would preside over the beginning of the end of the stimulus measures he set in motion in December 2012. He said in May that the Fed would being scaling back its latest round of quantitative easing programs in “the next few meetings,” creating the expectation that the “taper” would come in September.
But when the September meeting came around, the central bank surprised investors by keeping its stimulus purchases steady, and the Fed chairman struck highly dovish notes in his press conference afterward.
He held off on the taper because of the Fed’s strategy of conditioning its stimulus plans on incoming economic data: It has promised to keep buying bonds until “the outlook for the labor market has improved substantially.” The economic data in September, however, showed a weaker jobs picture than the Fed had expected.
Economic growth was running below the Fed’s projections, inflation was persistently below the 2 percent target, and the economy faced fiscal risks out of Washington in the months ahead. It seemed possible that job growth would decelerate — suggesting that the Fed, by its own policy statements, should keep the bond purchases at their current rate. Following the September meeting, the majority of investors pushed the expected date for the taper into next spring, well after Yellen is expected to take the helm.
But something happened to once again call into question the timing of the taper: Growth appears to have remained resilient despite the partial federal government shutdown and the debt limit scare.
The Nov. 8 jobs report showed that the economy added 204,000 nonfarm payroll jobs in October, stronger than projected. For the past three months, job growth has averaged about 201,000, higher than the 194,000 average monthly job gains over the past 12 months. Together with better-than-expected reports on manufacturing, that number suggests that the U.S. economy may have weathered the shutdown and debt ceiling scares in fairly good shape.
The November jobs report will come out Dec. 6. If it confirms the findings of the October report (which was tainted by the two-week shutdown of the Bureau of Labor Statistics), and other economic indicators also point toward expansion, some economists believe that the taper could come in December after all. The Fed’s next meeting is Dec. 17-18. That is the last time Bernanke is scheduled to give a press conference — a practice that he instituted. If the Fed doesn’t taper then, he will have one more chance at the Jan. 28-29 meeting, which ends two days before his term expires.