Christmas Taper Coming? This Week Will Drop a Hint

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Fed Chair Nominee Janet Yellen Testifies At Senate Confirmation Hearing
Alex Wong/Getty ImagesFederal Reserve chairman nominee Janet Yellen
By Alex Rosenberg

With the market nervously wondering whether the Federal Reserve will start to reduce their quantitative easing program, a few critical clues could come this week. Between Chairman Ben Bernanke's speech on Tuesday night and the release of FOMC minutes on Wednesday, investors will seek to determine whether a December taper is now on the table.

In addition, the intense, taper-related scrutiny of the job market will give Thursday's initial jobless claims data an added importance.

"The week, we really want to be focused on the typical Fed kind of talk -- but I also want to look at that jobless claims number, because the Fed is very dependent on data for their December meeting," said Jeff Kilburg of KKM Financial. "So keep an eye on all the data points once again."

George Goncalves, the head of U.S. rates strategy at Nomura, expects the minutes from the Federal Open Market Committee's October meeting to be much more revealing than Bernanke's Washington speech.

"We believe that Bernanke will continue to emphasize the committee views and be more balanced, so as not to steal the thunder of Janet Yellen as she takes over eventually," Goncalves wrote to CNBC.com.
But "the minutes could be revealing, because the last meeting statement was perceived on the hawkish side, so any insights on the Fed's next steps and their thoughts on fiscal issues will be keenly watched."

All eyes are on the Fed's December 18th statement, which will be followed by a press conference. Just a week before Christmas, the Fed could finally make the long-awaited (and long-feared) announcement that they will reduce the pace of their $85 billion-per-month bond buying program.

In fact, Andrew Wilkinson, the chief economic strategist at Miller Tabak, said that markets ignore that possibility at their own peril.

"In the market, there is too much emphasis based on the lack of a potential for imminent tapering," Wilkinson said. "But this is certainly something that could happen at the December meeting."

After all, Wilkinson hearkens back to the September meeting, when the Fed strongly signaled tapering, before keeping the pace of asset purchases consistent.

"It's been proven that this is data-dependent and at the mercy of the development of the economy, but we're back to the sort of data we had in September that created a groundswell of opinion -- provoked by the chairman -- that the Fed would begin tapering," he said. "Everyone knows that bond purchases are going to come to an end at some point. And if you look at the payroll numbers, I think they are probably strong enough. It suggests that the Fed is prepared to look at the cumulative improvement in the labor market and say in December that it's an appropriate time to move."

So with Bernanke's speech, the FOMC minutes, and the initial jobless claims all possibly shedding light on the tapering timeline, how are markets likely to respond this week?

"I'm going to look for bond markets to push lower as we get further guidance from the Fed, " said Todd Gordon of TradingAnalysis.com.


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7 Comments

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betty_brock

FIRE THE FED. We'd be better off to just let things happen naturally.

November 19 2013 at 1:49 AM Report abuse rate up rate down Reply
Big John

"Investors Await Hints on When Fed Will Begin Taper" These are the same people that tell us not to depend on government and want smaller government. Seems like they are depending a lot on the US government to keep supplying free money to big banks and business to pad their pockets. Government help and protection for the middle class, "Bad" Cheap money for big business, "Good".

November 18 2013 at 12:22 PM Report abuse rate up rate down Reply
coatoam

Too many amateurs in the market. If the President sneezes the market reacts. The savvy money is in the market because the money supply is ballooning because of Quantitative Easing. The fact that this spigot is being turned off is not going to reduce the money supply, it will only slow the expansion. Needless to say many day traders will dump stocks in response, but the smart money will stay out of cash, and it will either remain in the market or will come right back into the market. Inflation is already upon us despite what the government is saying, and it is just going to get worse. Those in a cash position are just going to watch their savings shrivel up.

November 18 2013 at 9:33 AM Report abuse +1 rate up rate down Reply
elendil3136

I don't understand this. If everyone agrees that a tapering of quantitative easing is inevitable, why should it cause a major negative reaction in the Market ?

To me, it simply reinforces my belief that the Market doesn't simply react. It over-reacts. That's why no one really knows what will happen or why.

November 18 2013 at 8:45 AM Report abuse +2 rate up rate down Reply
geraldlsolis

Fear Mongering Journalism. The FED keeps saying OVER and OVER and OVER again... NO TAPERING OF QE3. Then some journalist looking for something to write about says "The Taper is Coming, The Taper is Coming, We're all going to die".... Go Figure.

November 18 2013 at 8:37 AM Report abuse +1 rate up rate down Reply
2 replies to geraldlsolis's comment
jdykbpl45

Only the worst at Huffington Post.

November 18 2013 at 10:49 AM Report abuse +2 rate up rate down Reply
dweeeb.buster

First, the Fed has not said that there will be no tapering of QE3. What they have said at various points in the past is that tapering wouldn't begin at that particular point in history. But they've also said it will begin at some undetermined future point.

Could next month be that point in the future? Personally, I have my doubts, but theoretically, of course it could. And if it is, it won't be outside of the Fed's previous comments. Therein lies the rub. What markets dislike is uncertainty, yet uncertainty is what the Fed offers.

The good news is that fundamentally, a tapering is QE3 won't hurt a thing, and may well help. All the Fed has accomplished is a massive increase in excess bank reserves, proving that the problems caused by fiscal policy mismanagement simply can't be addressed by monetary policy. And attempts to do so run the risk of eventually creating more problems than they solve.

None of this means that there won't initially be a knee-jerk emotional response whenever QE3 tapering is finally announced. Markets are populated by humans who are prone to acting emotionally. But eventually common sense returns, so you just have to be able to filter out the inevitable noise.

November 18 2013 at 10:51 AM Report abuse rate up rate down Reply