Tags: Fed | Yellen | Zumbrun | Bernanke

Fed Presses Taper Caper

By    |   Monday, 23 December 2013 09:57 AM

As the Federal Reserve prepared to hold the last meeting of the Federal Open Market Committee for the year, markets around the world watched with great concern to see whether this would finally be the meeting at which the Committee would take some action to withdraw its support for the markets with Treasury and mortgage-backed securities, which were being purchased at a monthly rate of $45 billion and $40 billion, respectfully.

Either this was the case, or the business press didn't have anything else to talk about as the year winds down.

To help the audience prepare for the looming decision, on Dec. 18, Joshua Zumbrun, of Bloomberg News appeared on C-SPAN's Washington Journal for a brief interview with host Greta Wodele Brawner.

Zumbrun explained that the Fed would be revealing the fate of the stimulus program it has been conducting, which he characterized as "very aggressively" purchasing securities for the past five years, and economists have been saying it is time for the Fed to begin to reduce these purchases, which he speculated would be viewed as a "vote of confidence" in the ability of the economy to hold its own without this support.

Asked to elaborate, he added that in November, the reported unemployment rate dropped to about 7 percent, and this is seen as a sign that the economy is making progress toward "normal" performance. However, economists who follow this number closely also note a decline in the labor participation rate, which suggests that part of what might otherwise be seen as progress toward reducing unemployment is actually the result of people becoming so discouraged in their quest for work that they have dropped out of the labor force.

Brawner asked whether the announcement was likely to move markets, and Zumbrun responded that it was safe to say that it would, because a third of survey respondents think tapering will begin and 40 percent think it will not. (He was right about this, because after the announcement was made, the Dow Jones Industrial Average, which was not doing much, surged to a 300-point gain for the day.)

Finally, asked about the role of incoming Fed Chairman Janet Yellen, Zumbrun pointed out that Yellen has been very much involved in managing this policy, as vice chairman, and he went on to predict that there will not be a dramatic change in the program once Ben Bernanke leaves the chairmanship. As others, including senators, have done, Zumbrun credited Yellen with an outstanding record in forecasting the economy, calling her economic outlook "pessimistic, realistic and right."

I have predicted from the outset that the Fed would not be able to end what is called the "zero-interest-rate policy" and found it remarkable that the markets would react so strongly to such a modest change, in which the Fed would reduce purchased by only $5 billion in each category and commit to keeping interest rates near zero even after unemployment drops to 6.5 percent. Bernanke has hastened to assure the markets that "tapering is not tightening."

(Archived video can be found here.)

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On Dec. 18, Joshua Zumbrun, of Bloomberg News appeared on C-SPAN's Washington Journal for a brief interview with host Greta Wodele Brawner.
Monday, 23 December 2013 09:57 AM
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