The Daily Difference: Fed Policy

Bernanke spoke last night, emphasizing the beginning of tapering is still dependent on economic data. Bernanke said, “I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery. The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed.” Bernanke elaborated by pointing to the Fed’s 2% inflation target and labor market stability as goals that should be achieved prior to tapering. Although the Fed has been optimistic with regards to the projected path of the economy, the economic numbers that have been released have failed to keep up with projections. Below is a graph provided by The Washington Post that emphasizes the divergence between the Fed’s projections and reality:

Yellen, as Bernanke noted, is adamant a strong path to economic recovery should be clear before we start tapering. Given recent trends, it is unlikely tapering will occur in coming months unless the economy catches up to the Fed’s aggressive projections. Tapering has been delayed due to tighter credit conditions, caused by (of course) May’s tapering announcement. Yesterday’s existing home sales report indicated a -3.2% month-over-month change in existing home sales vs. a projected -1.9%....... not good for the pro-tapering crowd!