Fed ready for taper after shocking market, Meyer says

Bloomberg

Fri, Jul 05, 2013 - Page 15

Federal Reserve policy makers are ready to start tapering bond purchases in September after Chairman Ben Bernanke shocked markets by announcing a conditional timetable, said former Fed governor Laurence Meyer.

“They have made a decision virtually to go in September unless the data disconfirms their expectations of the continued improvement of the economy,” Meyer said of the Fed policy makers’ meeting on June 18 and June 19. “That was the shock of the meeting to have a schedule thrown out at this time with three months of employment data still ahead.”

If tapering does start in September, “why should there be any response? Everybody expected it,” Meyer said yesterday in an interview on The Hays Advantage on Bloomberg Radio with Kathleen Hays and Vonnie Quinn.

The Fed has been making US$85 billion in monthly bond purchases and holding the key interest-rate target near zero to spur job growth and US economic expansion. The central bank will probably taper its asset purchases later this year and may stop them next year as long as the economy performs in line with the Fed’s projections, Bernanke said at a June 19 news conference.

After a slump following the Fed announcement, stocks gained last week as economic data indicated Fed policy makers can continue to provide additional stimulus to the economy.

The “greatest gift” Bernanke can give to the next Fed chairman is to make the “tough decision” of when to start tapering, said Meyer, co-founder and senior managing director of Macroeconomic Advisers LLC. He said he sees “very little chance” that the start of tapering would be delayed beyond December.

Bernanke’s second four-year term as chairman ends on Jan. 31. While neither he nor the White House has said definitively that he will step down, US President Barack Obama suggested just that in a television interview last month, saying the Fed chief had stayed in his post “longer than he wanted.”

Fed Vice Chairman Janet Yellen was named as the most likely to succeed Bernanke by a third of those in a May poll of international investors, analysts and traders who are Bloomberg subscribers.