The Quiet Period Has Arrived At Last
In case you've been out at the malls and haven't had time to keep up with the goings on in the stock market, it is safe to say that "taper talk" has been all the rage of late. Whenever a Fed official or a piece of economic data suggests that the Fed might need to start tapering the latest QE program before March of 2014, stocks fall. And then, as you might suspect, when the data or somebody from the FOMC implies that there won't be any "Dectaper," yep, you guessed it; stocks rise.
This "taper talk" dance has been going on for quite some time and has been largely responsible for the vast majority of the intraday volatility seen in the past couple of months. But the good news is that the volatility caused by Fed officials voicing their opinions on what ought to happen next is very likely to come to a screeching halt.
You see, the members of the FOMC (Federal Open Market Committee) - the group tasked with making and implementing monetary policy in the U.S. - go into a "quiet period" today. In short, this means that none of the Fed-heads is allowed to talk taper or anything else Fed-related publicly from now until after the Fed's next meeting on December 17-18.
So, with far fewer folks providing their opinions on bond-buying, employment, inflation and the like on a daily basis, traders will need to find something else to focus on.
But before the gag order was imposed, three more Fed Governors found the time to talk taper yesterday. And since these three guys tend to be fairly influential, it is worth spending a moment to review what they had to say.
First Up: Jeffrey Lacker
Speaking at the Economic Outlook Conference of the Charlotte Chamber of Commerce, Richmond Fed President Lacker (who is a non-voting member of the FOMC this year) made comments that were pretty much in line with those of many other Fed members. Lacker effectively said that tapering will likely be discussed at the December FOMC meeting next week.
Lacker also noted that the key issue regarding the all-important taper decision is whether the benefits outweigh the costs. The Richmond Fed President said that he feels further stimulus is likely to have a limited impact on the economy, and at this point in time, the risks outweigh the benefits regarding the QE bond-buying program.
Now Batting: James Bullard
St. Louis Fed's Bullard is a voting member in 2013 but will not be in 2014. Bullard made headlines on Monday by saying that based on Friday's jobs report, the odds of tapering have increased. (And yes, the algos noticed.)
Bullard also noted there has been clear improvement in the labor market, but that inflation remains low. In econospeak, this means that the Fed has cover to keep monetary policy accommodative.
However, the comment that got most of the attention related to Bullard's idea that the Fed could dip its toe in the water this month. “A small taper might recognize labor market improvement while still providing the [Fed] the opportunity to carefully monitor inflation during the first half of 2014,” Bullard said.
And what happens if the economy weakens or inflation stays too low? Bullard suggested that the Fed could pause the tapering if inflation remains weak.
Next Up: Baseball Aficionado Richard Fisher
Dallas Fed President Richard Fisher (who made headlines years ago by relating Fed Policy to the innings of a baseball game) made the most of his last opportunity to sway opinion within the Fed by saying Monday that the Fed should begin to taper at its "earliest opportunity."
More specifically, Fisher told a gathering in Chicago: "In my view, we at the Fed should begin tapering back our bond purchases at the earliest opportunity. To enable the markets to digest this change of course with minimal disruption, we should do so within the context of a clearly articulated, well-defined calendar for reducing purchases on a steady path to zero. We should make clear that, barring some serious economic crisis, we will stay the course of reduction rather than give an imprecise nod as we did after the May and June meetings that led markets to believe the program might end as unemployment reached 7 percent."
However, Fisher also reiterated the Fed's "tapering isn't tightening" theme and said that rates would stay low for some time.
Fisher appears to be of the mind that it is time for the Fed to get out of crisis mode. "To be sure, we may wish to keep overnight rates low for a prolonged period, depending on economic developments. But we need to return to conducting monetary policy that is more in keeping with the normal role of a central bank," Fisher said.
Will They Or Won't They?
With all of the Fedspeak out of the way for a while, the question that the market will have to work with between now and December 18th is if the FOMC will decide to do a "taper-light" as Bullard suggests, do a bunch of talking as Lacker suggests, or just get on with it as Fisher suggests.
So, rest assured that traders will be placing their bets over the next eight days and that any data moving the needle on this issue will bring a response in the market. After that though, it might be time for Santa to arrive.
Positions in stocks mentioned: none
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