5 lessons from Fed speeches this week
Lesson #1. The Fed went into last week’s meeting not knowing how the vote was going to come out.
Markets are upset that the Fed did not telegraph in advance of the September meeting that there would be no taper. Several Fed officials said the vote was “close.” This means “too close to call ahead of time” and “too close to telegraph.”
“That was a borderline decision,” James Bullard, president of the Federal Reserve Bank of St. Louis, said last Friday on Bloomberg Television’s “Bloomberg Surveillance.” “The committee came down on the side of, ‘Let’s wait.’
Lesson #2. The deciding factor? The economy is wobbling, not powering ahead.
So with one camp in the Fed’s policy committee urging a taper and the other wanting to hold off, what was the deciding factor? It looks like it was the data since July, which came in weaker than expected and those expectations were not strong to begin with.
“Is America losing its economic mojo? There is some evidence to the affirmative,” said Atlanta Fed President Dennis Lockhart.
Lesson #3. Don’t bet your mortgage on an October taper
A natural question is whether the Fed will move at its next meeting on Oct. 29-30. Fed officials never say never, but officials don’t seem to be leaning in favor of a move.
“In the short time between now and the October meeting, I don’t think there will be an accumulation of enough evidence to dramatically change the picture” about where the economy now stands, Dennis Lockhart, the president of the Atlanta Fed Bank, said.
“It could be hard to do it (tapering) in October without losing face, but I don’t see why we couldn’t do it,” said Jeffrey Lacker, president of the Richmond Fed, according to Reuters.