Tags: Rickards | Fed | taper | September

Rickards: Fed Will Restore Stimulus if it Tapers in September

By Michael Kling   |   Monday, 15 Jul 2013 11:05 AM

If the Federal Reserve does begin to taper its stimulus in September, a slowing economy will force it to reverse course and restore its monthly $85 billion asset purchases, predicts Jim Rickards, managing director of Tangent Capital and author of the 2011 bestseller "Currency Wars."

If the central bank is going to taper its stimulus this year, it will do it in September, he told CNBC, because the Fed will want to explain its decision and the only meetings for the Federal Open Market Committee (FOMC) to hold a press conference after the meeting are in September and December.

"If they taper, it will be at an FOMC meeting with a press conference because the move is so significant the Fed will want the press conference to explain very carefully what they have done," Rickards told CNBC.

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

The December meeting, he explained, is too near Fed Chairman Ben Bernanke's expected exit in January to announce a monetary policy change.

"However, if the Fed does taper in September, they will find the economy sinks much faster than expected and ... they will have to increase asset purchases by early 2014."

Rickards also said that now a great time to buy gold. He recommends investors put 10 to 20 percent of their portfolio in gold.

"Gold is going down. The dollar is getting stronger, which is the opposite of what the Fed wants," he told CNBC. "The Fed wants a weaker dollar, negative real rates ... and more inflation. And that's good for gold."

Federal Reserve Chairman Ben Bernanke rattled markets by announcing that the Fed might start winding down its stimulus later this year and end it completely in mid-2014 if the economy improves as it expects. Markets settled down last week after Bernanke said a highly accommodated monetary policy will be needed for an extended time.

Most Fed members want to start trimming the bond purchases in September, but tapering that month is "not a done deal," Eric Green, global head of rates and foreign-exchange research at TD Securities, told Bloomberg. "Most of them want to see more evidence the job market is improving. The only way for the job market to improve is if growth shifts higher from the pace of the first half."

"Many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases,” according to FOMC minutes from the June meeting.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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