Tuesday, December 17, 2013

Tapering or Not Tapering?

This week I feel like the entire world is waiting for Ben Bernanke's announcement of the monetary policy decisions. So, is a tapering likely this month?

No! I do not think so. Three reasons:
[1] Inflation expectation are well anchored (see Cleveland Fed)
[2] Inflation is low

[3] Although unemployment declines, it still can get better.

[4] Real investment growth rate is not that remarkable.

Overall, inflation, i.e. half of the FED's double mandate, is low (perhaps, dangerously low) while unemployment, i.e. the other half, remains high and declines dully. That is to say there is no reason for tapering now