Are Feds On Schedule For September Tapering?
Feds have been confusing the market lately with their September Tapering talk and just as the market thought they got the Feds figured out, Bernanke managed to surprised them once again… The real question is, will Bernanke keep the September tapering timeline or will he keep policy accommodating for the “foreseeable future”?
Well, if this question was asked pre-FOMC Minutes last week, I think the answer most certainly would be a big “yes” as most analysts have made their opinions clear that asset purchase tapering will occur in September. As a matter of fact, during an interview with CNBC, Goldman Sachs’ chief economist Jans Hatzius went as far as saying:
…and if you know Hatzius, you know that he has not been wrong often, but there is always first time for everything, and what other evidence do we need than the words from the big man Bernanke himself?
Now I don’t know about you, but if Bernanke says that QE is needed for the foreseeable future (at least 6 months?) and the fact that Unemployment Rate at 7.6% is nothing to be optimistic about, the probability for a September Tapering should be at least cut in half, if not more.
Furthermore, Bernanke also voiced his concern over the drop in inflation. As a matter of fact, although he said that:
And there it is, our “Ah-ha” moment. Regardless of what the market says, unless we see increases in inflationary pressure, Feds aren’t likely cutting asset purchases any time soon… and quite the opposite, if inflation continues to drop, Feds are infinitely more likely to delay tapering. With the current y/y CPI at 1.4% and Core y/y CPI at 1.7%, unless we get a 0.4% or better reading for this week’s Core CPI release, September tapering should not take place.
Therefore, the plan for the time being should be SELL USD on rallies, unless Bernanke surprises us again during his appearance in front of Congress this week.