Permanent Value

Week in Review 9/16/13

Bruce Doole
September 16th, 2013

Fed’s Williams expects taper to start by year-end

Any policy change will depend on the unemployment rate continuing to decline and inflation being kept in check, [John] Williams, (San Francisco Federal Reserve Bank President) told community leaders in a speech in Portland, Ore.

“The unemployment rate and a number of other labor-market indicators, such as payroll job gains, point to continued progress in the labor market,” said Williams, who is not a voting member of the Fed’s policy-making committee. “Clearly, we are getting closer to meeting our test of substantial improvement in the labor market.”

Investors largely expect the Fed to begin to taper its $85 billion-a-month asset-purchase plan at its Sept. 17-18 meeting, but data including Friday’s nonfarm payrolls report will play a role in the bank’s decision. Analysts surveyed by MarketWatch forecast that the economy added 170,000 jobs in August — an improvement from July’s 162,000 — and that the unemployment rate held steady at 7.4%. See Economic Calendar.

The Fed has pledged to keep buying Treasury bonds and mortgage-backed securities until there is substantial improvement in the U.S. labor market and economic growth. The program has keptU.S. interest rates at record lows.

At their last meeting in July, Fed officials agreed that the economy will improve later this year, paving the way for the central bank to scale back its asset purchases. But they didn’t signal exactly when they’d slow down bond buying.

Williams said he’s “encouraged” by data that suggest the decline in inflation over the past 12 months will be temporary. He expects inflation to “gradually” climb toward the Fed’s 2% longer-run target over the next few years.

After Williams spoke, the Fed released its latest Beige Book, which showed that the economy grew at a “modest to moderate” pace in July and August.

By Robert Schroeder, MarketWatch