Again, the Taper isn’t Coming Any Time Soon….

I’ve been saying this for months now, but it’s worth repeating – the Fed isn’t tapering any time soon so let’s stop worrying about that.  In addition to the economic weakness that I’ve previously highlighted (muddle through GDP expectations at 2.5% in Q4, unemployment over 7%, inflation below the Fed’s target, sagging corporate profits, a potential housing market drag in Q4, etc) we now have the Fed Chief transition.

I don’t think there is a chance in hell that Bernanke would initiate a taper in the midst of a Fed Chief transition.  He doesn’t want to start tapering and then leave Janet Yellen with the public relations and market debacle that could likely unfold around all of this.  That has the potential to be highly disruptive.  My guess is that Ben Bernanke will quietly slip into the night leaving a hot steamy mess of QE behind so Janet Yellen can spend the next few years trying to figure out how best to clean it up.

Anyhow, I got sidetracked in my near disgusting metaphor there….John Hilsenrath of the WSJ says the same basic thing:

“The Fed is unlikely to start curtailing its bond buying at its next policy meeting Oct. 29-30. Fed officials have said the decision depends on how the economic data evolve, but the data won’t be very illuminating into November because the partial government shutdown closed the agencies that collect them.

“For those who really look at the data, it is going to basically delay thought of changing course,” Richard Fisher, president of the Federal Reserve Bank of Dallas, said Thursday in an interview. “

So, fear not.  No taper, no tantrums.  Okay?


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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  1. Cullen,

    Your confusing your readers. In the last post you said that the rail traffic index was a sign of encouraging economic growth but here you are saying that the Fed won’t taper because it sees signs of discouraging economic growth. Which is it?

  2. And to add further confusion to readers, the post about endless QE, which Cullen says is not “money printing”, is accompanied by a photograph of, what else, money printing!

  3. To better understand rail traffic, plot the difference (“spread” ) between the prices of domestic ($100.87) and imported crude ($109.47). As long as domestic oil is cheaper, many U.S. refineries will look for ways to transport the relatively cheaper crude oil ………. manufacturing is still less than 10% of GDP.

  4. Not exactly clear on why “sagging corporate profits” are necessarily an indication of economic weakness? Wouldn’t increased competition and a strengthening of labor relative to capital be good for economic growth? A continuing trend of the corporate profit growth during the past few years would seem to be a strong indicator that capitalism is dying in the U.S.A.

  5. Which is why Warren Buffett’s Buddy in the White House won’t sign off on the Keystone XL Pipeline… We can’t hurt Berkshires BNSF bottom line now can we?
    Warren is such a great Doner…Ur a I mean American

  6. I think the biggest fear should be that there is no taper anytime soon. For five years in a row we’ve been witnessing a policy that does nothing substantial for the economy whereas it does do things to asset classes. Why would anyone be happy to let this policy go on, apart from the fact that it might be benefitting for their short term wealth?

  7. And to add to that we’re being told that America has an overwhelmingly capitalist system, but when corporate profits are sagging everyone should be looking at the government for help. Does it get more Socialist than that?

  8. Yep, dems are into the money game. Without the support they once had with the unions they have to have money if they want to compete. Another side effect of wealth imbalance.

  9. Of course we’re not gonna taper soon. We put a crazy Marxist/Krugmanite psychopath in charge of the most powerful position in the world. May God help us all because we’re going to need it.

  10. Those dirty communists are everywhere. I heard that in my town they are hiding in storm drains and snatching babies that they will eat at sex orgies they have with their extended families. And now they have taken over the fed and potus. Load your guns, the final assault is near!

  11. See this link here:

    Now tell me that you think Yellen should be our Fed Chairman. I’m sorry, but we’ve just put a borderline Krugmanite-Marxist leading the most powerful institution in the entire world. You gotta be a nutcase to say some of that shit.

  12. All hell is going to break loose when the market realizes that equities have decoupled from talk of the taper. There isnt nor has there ever been an actual connection between the massive purchases and anything of value. This has more to do with religious faith than economic reality.

  13. Aw, lighten up. If there’s one thing I’ve learned over the years it’s that my predictive powers are just like everyone else’s, near zero. You’re way out on the end of the bell curve. It’s not as bad as you think.

  14. I’m not sure exactly how it will be presented, but I also think this administration will eventually introduce a “4th” Fed mandate to involve the Fed more directly in Fiscal policy and operations of the country.

  15. “In that scenario, “the demand for labor is zero, and the unemployment rate is unity,” (meaning one, or 100 percent). On the other hand, if there is unemployment, then a given firm could “set its wage at any level.” In that case, a given firm would choose a wage that maximizes value—and once they do so, “every firm should hire an infinite amount of labor,” which would solve the problem of unemployment.”

    How can you say something this stupid and become head of the Fed? How can anyone actually think this is even close to the way employers hire? I really hope the GOP blocks her.

  16. He’s been describing the US economy as a fragile muddle through for years now. Try reading more than two posts.

  17. Do you even know what capitalism is? It’s private ownership of production. The fact that a government sometimes influences profit levels doesn’t change the fact that the means of production are still privately owned.

  18. No worries. The Fed is a Command/Central Planning type institution, so a Marxist would fit right in.

  19. I’m getting more and more depressed the longer I think about it. We’re all basically screwed.

  20. Thanks for enlightening me; you mean capitalism is unlike what happened to GM, AIG, Bear Stearns, Fannie and Freddie, JPM, GS and so on?

  21. Collen

    According those in the know and as explained here, tapering has no real effects on main economy. It is simply accounting gimmicks passing asset flows to banks to smooth things over while the economy recovers. It stays out of the main economy and is held as reserves. The banks can not use the cash to buy assets with the proceeds such as equities etc.

    So why does the simple talk of removing $85 billion a month in flow, that we are told sits “dormant” and not usable in reserves, give people heart burn? And if QE has no net effect on anything, why can’t the FED just sit on the $4 trillion in newly acquired assets and not require the banks to buy them back at a future date?

  22. The govt temporarily owned parts of those entities in the worst and most unique financial crisis of the last 80 years. Let’s stop calling everything the govt does “socialism”. That’s abusing the actual meaning of the word. GM, AIG, Bear, And GS are all privately owned companies. Freddie and Fannie never were privately owned so anyone who thought that in the first place was just misinformed.

    Why the hyperbole? If you think there’s too much govt then fine. I probably agree in a lot of cases. But don’t just go around calling it socialism when it’s clearly not.

  23. I don’t think that everything the government does equals socialism, I’m just not convinced that the US has an overwhelmingly capitalist system; to me it’s more like an oligopoly.
    Why are you so sensitive about socialism? There are a lot of positives that can be taken from socialism, at least that’s what I think.

    What I dislike is subsidizing by government or central banks that has become commonplace over the last several years. That might be part of capitalism or not, I don’t really care, but I just think it’s morally wrong. The same applies to the funding of politicians by corporate entities.

  24. IMO, we’re in a period of debt destruction and will be for quite a while. Ending QE of any flavor would be reckless and stupid in this scenario.

    Can anyone tell me why nobody calls out the financial “journalists” who insist on pointing to QE as something friendly to the price of gold, time and time again? One look at a GLD chart for the past 5 years tells you everything you need to know about that relationship.

  25. Oligopoly may well be what we have, but that does not have to be capitalism. A monarchist system may well be an oligopoly. Bailing out banks and corporations by government is meant to save capitalist enterprises. That is not socialism. When the government takes over a company, for example, to improve its role in public affairs, that is socialism. Public education, metropolitan police, and land grant colleges are examples that fit socialism.

  26. The Keystone pipeline is to transport Canadian oil to the Gulf coast for export. It is important for Canada so they don’t have to overcome the western mountains or the the distance involving the Great Lakes and the St. Lawrence Seaway. Should we help Canada at the possible risk to our AgrIculture?

  27. It is based off a model.. She is saying that about the model she made. She knows the model isn’t accurate, it even says so in the article.

    “But before that is elucidated, it is important to understand that under the admittedly “rudimentary model” used by these economists, unemployment is a bit of a riddle. “

  28. If the unemployment rate keeps falling… which it has plenty of room to do, then the stock market will not crash. Easy.

  29. Michael – care to cite a specific example? i do really appreciate Cullen’s educational portion of the site. very helpful.

  30. can we instead call everything the gov’t does that does not intrinsically infringe on individual liberty as statism? personally i think socialism, right, left et al labels are imprecise terms whose popularity are encouraged by special interests who benefit from the confusion. imo, the free market wants to be free. when the gov’t applies coercion that doesn’t change the impulse of the market. that energy has to go somewhere, even if it’s constrained.

  31. The US looks like China these days except for elections but also Venezuela and Argentina have elections… it seems that central planning is the only game in town almost everywhere, US, China, Japan, the EU of course.

  32. It will be intersting to see what will happen next spring with EURO / USD at 1,48

  33. Yes, there is statism to some degree. But we have to understand why that is. To a large degree this exists because capitalists are flawed. If left to their own volition, the capitalists will monopolize everything. This is a fact of the capitalist system. It veers towards monopoly and corporatism. If you don’t stop the monopolization of the capitalists then you ultimately end up with a handful of companies who rule the entire economy. This means enormous inequality as all the wealth flows into the hands of a few. It means unemployment (becauses capitalists, in order to maximize profits, will not hire any dead wood). It means suppressed wages because capitalists want to maximize profits. The state comes in to stop the capitalists from doing what they really want to do – monopolize the economy.

    So pick your poison. You can either choose between a capitalist system with some statism. Or you can let the capitalists run totally free resulting in all the problems I laid out above. Those are your two choices. The USA tends to choose a balance of capitalism with some statism which has actually worked pretty well. Capitalism is great. Unfettered capitalism is potentially very dangerous. So, does the USA have the right balance? I don’t know. You decide. But the idea that the “free market” should just be allowed to “run free” is a very dangerous one that misinterprets the natural motives of capitalists.

  34. Most of the product from the refinery where that oil would go is exported so won’t effect supply much here, although it is speculated that it could help to raise tar sands prices. Except for a few jobs no large impact on US economy. Tar sands are mixed with acidic emulsifiers to make them flowable, very nasty stuff in spill. Plenty for folks to fight over.

  35. Cullen, do you think if the Fed ramped up asset purchases to $200 billion/month, we’d see some more inflation?

  36. That’s a horrible thing for the Euro. What the entire Eurozone needs is a much weaker Euro.

  37. No tapering? The Fed should consider an clear, transparent program to “taper up” every month they do not meet some targets, such as four quarters of healthy real GDP growth or unemployment under 6 percent….and why not “taper down” a basis point a month on IOER?

    The Fed is like a battle ship shooting spitwads…when will they bring out the serious ammo?

  38. Well said Cullen. Totally agree. And there’s even further nuance: there’s many specific ways and many specific places government can “intervene”. Regulate one sector heavily, another loosely, tax one sector a lot, the other not at all, etc. Each western country has a different mix of those.

  39. Why would anyone even come up with some BS like that? How does that even come up into anyone’s head? I’m sorry, but that is straight Marxist.

  40. “Either way, no one doubts the influence of the theory devised by Yellen and her husband. “We’re building knowledge slowly, and this is a big contribution,” Burger said.

    So what does the argument tell us about how Yellen would direct Federal Reserve policy?

    “She is on the side that there are serious impediments in the labor market,” Burger said. For Yellen, “the labor market won’t create full employment by itself. And if you believe that there are serious impediments to full employment, that gives you the case for an active policy that stimulates the economy to drive the unemployment rate down.””

    Rather than looking to made up Marxist bullshit, Yellen needs to go back to the basics. There’s simply not enough spending. It shows a serious misunderstanding of economics. Yellen needs to go back to Keynes and Minsky.