What Impact will Syria Have On Fed Monetary Policy?Submitted by Smaulgld.com on Fri, 08/30/2013 - 11:58
Louis notes that the economic data in the aggregate is not good-even the GDP number masks weakness. Louis believes that the Fed is moving inexorably towards tapering, mostly because the Fed has signaled it and the market expects it.
Louis raises the point that because the deficit has gone down this year in part because Freddie Mac has returned a large sum of money to the treasury and therefore the borrowing needs of the US government have been reduced and therefore doesn’t need the Fed to buy $45 billion a month of US Treasuries and can get by with a tapered amount of purchases for a while.
Louis also notes that Reuters continues to characterize the initial jobless claim data as indicating strong job growth. Louis points out that fewer people losing their jobs does not mean more people getting jobs.
Louis notes that if the Fed tapers they will come right back with more QE. Louis predicts the Fed will note if the market tanks that they did not expect it and reinstate QE perhaps use Syria as an excuse to do more QE.
Ryan believes that the Fed will not taper as long as Bernanke is President of the Federal Reserve (until the end of the year). Louis notes that the situation in Syria may cause the Fed to need to provide more “monetary support” if oil prices rise as a result and the economy deteriorates further. Louis notes that this may not be called QE and indeed be done outside of QE and called emergency crisis measures, that may be in excess of the current levels of QE.