To Continue or Not To Continue Tapering QE – Fed Presidents Muse

A few Fed Presidents are continuing to vocalize their insistence on continuing to taper their quantitative easing (QE) program. While the minority Fed President hawks have never liked the program, and have warned about distortions in the market, bubbles and inflation, they are now saying the Fed can taper because the economy is strengthening. We just have to get through a little rough weather patch, then job growth and the economy will begin their ascents and QE can be ended.

Is the Economy Really Recovering and Achieving “Escape Velocity”?

Here is what a few Fed Presidents are saying:

Dallas Federal Reserve President Richard Fisher (hawk)

Enough is Enough!

Dallas Fed President Richard Fisher has been a consistent and vocal critic of QE once calling it “monetary cocaine.” In a recent speech in Austin Mr. Fisher said that the Fed has provided “more than enough” QE to help the economy. He went on to assert that the faults in the economy do not lie with the Fed’s monetary policy but rather with dysfunctional fiscal policy “It is my firm belief that the fault in our economy lies not in monetary policy but in a reckless and feckless federal government that simply cannot get its fiscal and regulatory policy geared so as to encourage business to take the copious amount of money we at the Fed have created and put it to work creating jobs and growing our economy.” Mr. Fisher loses some credibility with this statement – if only Congress knew how to manage the wonderful gift of $4 trillion dollars that the Fed printed out of thin air and handed to the too big to fail banks!

The Dallas Fed president is a voting member of the Fed’s policy-making panel this year.

St. Louis Fed President James Bullard (moderate)

The Economy is Strong, No Weak, Taper, Wait Don’t Taper…So Much

St. Louis Fed President is a moderate who vacillates in his support of QE. Mr. Bullard takes the view that the continuance of the QE program depends on the economic data. Mr. Bullard also seems to vacillate in his intepretation of the economic data, seeing strength and weakenss in the same data. Mr. Bullard is seeing some economic weakness in the recent economic data, but thinks the job market is improving. “In particular, the recent, relatively rapid declines in unemployment can be understood as representing an improving labor market,” Mr. Bullard said on February 19 to the Exchequer Club in Washington D.C. Mr. Bullard added “Now that we’re closer to a normal economy with a much lower unemployment rate, we can go back to some more normal kind of monetary policy…”

Mr. Bullard, however, sees enough weakness in the economy for the Fed to consider slowing down the pace of tapering QE and perhaps end the program in 2015 rather than at the end of this year. Yet he added: “The outlook for the U.S. economy is still good even if it turns out that the fourth quarter and the first quarter were a little bit weaker than we otherwise anticipated,” Bullard said. And any weakness, of course, can be blamed on the bad weather.

Mr. Bullard is not a voting member of the Fed’s policy committee this year.

Atlanta Fed President Dennis Lockhart (dove)

Absent a Serious Economic Downturn QE Should End This Year

Mr. Lockhart is convinced that the economy is strengthening and will grow at 3% this year and therefore the Fed should completely wind down QE this year – unless the economy takes a serious turn for the worse.

Mr. Lockard noted in a speech delivered at Mercer University last week Wednesday: “My preference is to scale back our purchase program at a faster pace to reflect the strengthening economy. As long as the outlook remains solid and does not deviate dramatically from the path we believe it’s on, I would expect the tapering of asset purchases to continue over the balance of the year. I expect the asset purchase program to be completely wound down by the fourth quarter of this year.”

Mr. Lockhart indicated his lack of concern over recent weak economic data: “Even though the first quarter of this year may turn out to be soft, I am “looking through” the recent information to a full year of sustained higher growth,” Lockhart said. Probably just the weather.

Mr. Lockhard is not a voting member of the Fed’s policy committee this year.

Philadelphia Fed President Charles Plosser (hawk)

Let’s get it over with ASAP

Philadelphia Fed President Charles Plosser, perhaps the most hawkish Fed President, said earlier this month that the Fed should perhaps end the QE program by mid year faster than the pace his colleagues have suggested for ending the program. This would mean increasing the size of the monthly taper beyond just $10 billion a month.

San Francisco Fed President John Williams (dove)

San Francisco Fed President John Williams recently told CNBC that QE guidance would continued to be tweaked and that numerical markers were not optimal when considering whether to print billions of dollars: “It is time to move away from numerical markers” Williams said.

For now the Fed Presidents see the economy as resilient, the labor market improving with only a too low inflation rate and bad weather clouding their economic forecast. With the stock market at record highs and home prices still rising, what could go wrong?

The housing “recovery” as we have noted is in price only and the stock market strength belies the underlying health of the economy. Soon new Federal Reserve Chair, Janet Yellen will be tested as it turns out economic weakness can’t be blamed on the weather, the stock market tumbles and home sales dry up.

We predict, when faced with any type of financial uncertainty or crisis, Ms. Yellen will pull the magic ring from her pocket and hit print.

The Fed’s next policy making committee will meet on March 18-19.