Fed taper more likely in 2014: IHS Global Insight

Answering a query on whether it was likely that Fed would taper now Paul Edelstein, Director-Financial Economics, IHS Global Insight says, he would rule out any taper at the late October meeting because the fog of fiscal uncertainty still clouds the market.

However, the Fed has a last chance to taper in middle of December in a situation where the shutdown ends, debt ceiling is raised for a year or two and labour market data looks good. It is more likely they might wait into 2014 when Janet Yellen takes over. Also read: Questions Yellen will likely face for Fed confirmation Below is the verbatim transcript of his interview on CNBC-TV18 Q: What do you make of this political deadlock that we are seeing in Washington DC and is short-term extension in the debt ceiling limit a solution to this problem? A: It is certainly a positive development. I think it gives both sides of the aisle an opportunity to claim some victory; Republicans get the Obama administration to negotiate but Obama can say that the rest of the debt ceiling without giving in on anything. What it does is that it sort of moves Obamacare and the issues of defending Obamacare out of the argument and puts the onus back on debt and deficits, not something that in time republicans and democrats can negotiate over. Q: Doesn’t this just postpone the fear and the worry and take us six weeks closer to another round of concern about the debt ceiling situation? A: We could be back here in six weeks but there is a substantive difference that Obamacare might be taken out of the equation for raising the debt ceiling; maybe not for the shut down but for raising the debt ceiling. It looks like they are going to have to negotiate over other things and that wedge that was between democrats and republicans over Obamacare isn’t there and that should make markets much more hopeful. Q: Based on the FOMC minutes last night, do you believe this year there is likely to be any taper whatsoever, or have the prospects of taper now been pushed out to Q1 of 2014? A: At the very least we can rule out a taper at the late October meeting. It is not going to happen especially if any solution that paper-on-the table is only for a handful of the weeks, there is no way the Fed is going if this  fog of fiscal uncertainty still clouds the market The last chance Fed would have to taper would be in the middle of December. I could imagine a situation where the shutdown ends, we put a year long continuing resolution on the table – it gets passed, the debt ceiling is raised for a year or two and the labour market data looks good enough then the Fed could taper in December. But more and more it is looking like they just might wait into 2014 when Janet Yellen takes over the helm.