January 21, 2014

Fed may decide more tapering at January meeting

Jan. 22, 2014 – The Federal Reserve may further reduce its asset-purchase program by another $10 billion a month, redu cing it to $65 billion a month, following its Jan. 28-29 policy setting session, according to reports.

The Wall Street Journal reported that if the Fed trims its asset-purchase program again, it would be the "second time in six weeks as a lackluster December jobs report failed to diminish the central bank's expectations for solid U.S. economic growth this year."

NAFCU Chief Economist and Director of Research David Carrier agreed some additional tapering could be in store. He added, however, that the Fed may not adjust its federal funds target rate this year even if unemployment goes below 6.5 percent. "They keep reminding us that it's a threshold, not a target, so they have given themselves wiggle room to allow it to go much lower than 6.5 percent," he said.

Carrier said the key to the Fed's plans for how fast to unwind its quantitative easing program and bump up interest rates depends on what happens to labor force growth and the rate of those actively participating in the job market.

"The jobless rate is declining much faster than the Fed expected – hitting 6.7 percent in December," WSJ reported. "It is falling in part because people are leaving the labor force, reducing the ranks of those counted as unemployed."

The FOMC's Jan. 28-29 meeting will be the last for Fed Chairman Ben Bernanke before he retires Jan. 31. Janet Yellen, currently vice chair, will succeed Bernanke as Fed chair on Feb. 1.