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Shostak on the Taper: The Fed May Wait Until Next Year

October 3, 2013 in Economics

By Mises Updates


Writing in Mises Daily, Frank Shostak notes that the Fed still fears a taper could hurt the feeble recovery:

If Fed policymakers were to decide to taper bond purchases, most experts are of the view Fed policymakers are likely to announce that the U.S. central bank is going to keep its near-zero interest rate policy for a prolonged period of time. This, it is held, should prevent negative side effects coming from the reduction in bond purchases.

For instance, in 1994 when the Fed started a tightening cycle the federal funds rate rose from 3.05 percent in January 1994 to 6.04 percent in April 1995. This, it is argued, caused a sharp fall in the pace of economic activity. The yearly rate of growth of industrial production fell from 7 percent in December 1994 to 2.7 percent by December 1995.

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