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In the latest issue of Things That Make You Go Hmmmmm, Grant Williams points out that maybe the Fed is starting to believe John Williams!

Big Al
January 2, 2014
8
THINGS THAT MAKE YOU GO
Hmmm…
30 December 2013
Bernanke also committed the cardinal error of announcing that QE would END once
unemployment fell to 7% — a statement he had to back away from, rather
embarrassingly, as the slump in the participation rate brought 7%
unemployment closer, rather faster thanexpected:
(WSJ, Dec 6, 2013 ): Back in June, when Fed Chairman Ben Bernanke laid out a tentative
timeline for winding down the bond-buying program, he said 7% is where the Fed
expected the unemployment rate to be when it ended the purchases. He said central
bank officials expected that to occur around mid-2014. Friday’s jobs report showed the
jobless rate hit that level in November, and the Fed hasn’t even started scaling back the
program.
The jobless rate for May, the latest data Mr. Bernanke had when he laid out that guidepost, stood at 7.6%. Then it fell much more quickly than Fed officials expected,dropping to 7.4% in July and 7.3% in August.
In September, the Fed surprised many market participants and held the quantitative-
easing program steady. At his press conference after that meeting,
Mr. Bernanke made no mention of the 7% guidepost he’d set out a mere three
months earlier. When asked about it, he downplayed the importance.
“There is not any magic number that we are shooting for,” he said. “We’re looking for
overall improvement in the labor market.”
In short, the trial balloon floated to gauge potential reaction to a $20 bn per month
Taper was a disaster, and that meant that when the September FOMC meeting came around, the governors
in the voting seats just couldn’t bring themselves to pull the trigger.
Oopsies!
When the minutes of the October meeting were released in November, it became clear that the
FOMC, lessons duly learned, were going to try out the Taper again — perhaps in December:
(Fox Business): Federal Reserve policy makers are still struggling to find the right message for conveying to investors their plans for scaling back their easy-money policies, notes from the Fed’s October meeting reveal.
The minutes, released Wednesday, also said members of the policy-setting Federal Open
Markets Committee could see the central bank trimming its $85-billion-a-month bond-
buying program at “one of its next few meetings.”
If at first you don’t succeed…
But they had clearly realized that even a $20 bn Taper was going to be taken poorly by the
markets, and so the FOMC (and in particular its soon-to-be-retired chairman) needed to pull off
a delicate balancing act.
On the one hand, Bernanke would want to leave the Fed with the wind-down of his expansionist
policy underway so that he would have the kind of plausible deniability that history has
gradually been stripping away from Alan Greenspan. (“Hey, don’t blame ME. We were exiting
QE when I left office!”) On the other hand, though, he wouldn’t want to hand Janet
Yellen an impossible situation.