Friday, June 21, 2013

More Thoughts on QE3 Taper Timing

by Bill McBride on 6/21/2013 10:01:00 AM

Yesterday I posted Four Charts to Track Timing for QE3 Tapering. I will update those charts as data is released.

The table below lists the four remaining FOMC meetings this year and the key data that will be available at each meeting.

Following the September and December meetings, the FOMC will release updated quarterly projections and the meeting will be followed by a press conference. It seems more likely that the Fed will announce tapering at a meeting with a press conference.

As the four charts indicated, economic growth (and inflation) would have to pick up for the Fed to announce the tapering of asset purchase at the December meeting. To start tapering at an earlier meeting, economic growth would have to increase significantly.

To taper at the July meeting, the advance estimate of Q2 GDP would probably have to be well above 3%, May PCE prices increasing at a much faster pace, and the May unemployment rate at 7.5% or below. Even then, I think most FOMC members would want to wait for more data.

There is a slight chance of tapering starting in September.  There is a press conference following the meeting, and updated quarterly projections will be released.  If the unemployment rate for July and August average below 7.4%, and PCE prices were increasing - it is possible the Fed could announce tapering.

The most likely meeting for announcing tapering this year is in December.  By then the 2nd estimate of Q3 GDP will be available (plus some better forecasts for Q4).  The November employment report will be available (and the FOMC will have a good idea if the unemployment rate will be around 7.2% in Q4), and PCE prices through October will be available (we will have evidence if the decline in inflation is "transitory".

Note: The December press conference will probably be the final press conference for Ben Bernanke as Fed chairman.

My current view is tapering will start in December or in the first half of 2014.

FOMC Meetings in 2013
DatePress ConferenceKey Data
July 30-31, 2013NoJune employment, Q2 Advance GDP, May PCE Prices
Sept 17-18, 2013YesJuly & Aug Employment, 2nd Estimate Q2 GDP, June & July PCE Prices
Oct 29-30, 2013NoSep Employment, Q3 Advance GDP, August PCE Prices
Dec 17-18, 2013YesOct & Nov Employment, 2nd Estimate Q3 GDP, Sept & Oct PCE Prices