Carrier not expecting FOMC to begin taper

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NAFCU Chief Economist David Carrier

Dec. 17, 2013 – The Federal Open Market Committee will begin its two-day meeting tomorrow, and while some observers are expecting a tapering announcement, NAFCU Chief Economist David Carrier believes the Fed will wait until early 2014 to begin tapering asset purchases

Citing recent NAFCU Macro Data Flash reports on the consumer price index, employment numbers, and the GDP, Carrier explained that the long-awaited beginning of tapering may be delayed until next year.

“Although the unemployment rate dropped to 7 percent last month, there is more to the employment picture than the unemployment rate,” Carrier said. “The Fed is probably also looking for consistent job growth of around 200,000 per month- because that’s what it would take to have a sustained reduction of the unemployment rate to the 6.5 percent threshold.”

Carrier said the country’s employment situation is also “muddied” because of volatility in labor force growth, citing the fact that 720,000 workers left the labor force in October, and 455,000 re-entered it the following month. He believes the Fed is looking for a more consistent pattern in labor force growth before tapering, because it also affects the unemployment rate.

“The Fed’s dual mandate includes both employment and inflation, and they’d like to see the latter averaging about 2 percent,” Carrier said. “Their favored metric is the core PCE, which has been averaging only about 1.4 percent. The core CPI is typically higher, and it’s only at 1.7 percent. With continuing sluggish global and domestic demand and falling energy prices, it’s unlikely we’ll see inflation increase to 2 percent anytime soon.”