Fed could taper soon as cautious first step

by Adam Smith14 Aug 2013

The Fed could begin tapering its bond buying next month, but the decision would be a "cautious first step".

In a speech in Atlanta, Atlanta Fed President and CEO Dennis Lockhart has left the door open for near-term tapering of the Fed's bond buying program. But Lockhart said a decision to wind back the program would not necessarily be a "full phase-out", but rather that the Federal Reserve's September meeting could lay out "a precise, beginning-to-end path" for tapering.

"As I see it, a decision to proceed—whether it is in September, October, or December—ought to be thought of as a cautious first step," Lockhart said.

At the Fed's September meeting, Lockhart said the board would have more economic data in hand, including another employment report, two inflation reports, a revision to the second-quarter GDP data, and preliminary incoming signals about third quarter economic growth. Armed with this, he suggested the Fed would be in a better position to consider tapering its bond buying.

Lockhart argued that the effects of QE3 were being seen in the economy, and that there was "steady progress in economic fundamentals".

"In August a year ago, the unemployment rate stood at 8.1 percent. A year later, the unemployment rate has fallen to 7.4 percent and monthly job gains, looking back over the year, are averaging just below 200,000. Consumer activity has grown, house prices and housing activity have picked up, and equity markets have shown strength."


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