Fed won't taper until longer term budget agreement: IHS

Fed's recent statement was very similar to the one it put out in September despite all the stuff that happened on October with the government shutdown and with the debt ceiling fight, says Paul Edelstein, Director-Financial Economics, IHS Global Insight. He says it is puzzling that the fiscall passé hasn't been factored into their outlook or decision to taper at all.

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According to him, until the Fed sees a longer-term budget agreement at least going up for the rest of the year, it is not going to taper and it is going to take a couple of months in 2014. Below is the verbatim transcript of Paul Edelstein's interview on CNBC-TV18 Q: What did you make of what the Fed said? Did you also think that it was less dovish than expected and if yes, why?
A: Yes, it did. The interesting thing about what the Fed did is they put out a statement that was remarkably similar to the statement that they put out in September despite all the stuff that happened in October with the government shutdown and with the debt ceiling fight, they still feel that downside risks to the economy if the minutes since last fall when they started doing quantitative easing (QE) three. That is puzzling that what happened was fiscal passé and what is still going with fiscal passé hasn't factored into their outlook or their decision to taper. Q: Couldn’t that be because the government shutdown and its impacts are temporary, right. I know we might revisit this in March but maybe the Fed is not looking at this as a permanent condition and hence did not add to the language that they have in the statement or make any specific reference to the economy weakening because of a government shutdown or the fiscal issues?
A: I think that is absolutely right but I do not think this is what we have to live with forever and ever. But clearly we are still not out of the woods as this agreement will only last until the very beginning of the next year and government also put in a longer term budget agreement to get things going. But I think that as long as until the Congress does this, the Fed is going to be on hold and until the Fed sees a longer term budget agreement at least going up for the rest of the year, the Fed is not going to taper and it is going to take a couple of months in 2014.