For months now, the Fed has been hinting that a taper to their $85 billion/month bond-buying program was necessary in the near future. Since June, every month before the Fed meeting, the stock markets have tumbled and investors have been extremely concerned about how a Fed taper might impact investments. In September, most had completely accepted the fact that a taper was likely to happen, and were astonished when the Fed pulled back from a taper and kept the program running full swing. Now, due to the government shutdown, the debt ceiling, and the upcoming change in leadership, it looks like a 2013 taper may no longer be in the cards.
Why The Fed Is Concerned To Start A QE Taper
As was already mentioned, the government shutdown is seriously weighing on the U.S. economy. The longer the government keeps its doors closed, the worse the financial impact will be on the economy. In fact, it was estimated by Moody’s Analytics that the shutdown could cost the economy as much as $55 billion if it drags out 3-4 weeks. That’s the equivalent of the cost of Hurricane Katrina and Hurricane Sandy combined! To compound the problems, if the debt ceiling is not extended in the near future, the U.S. could be facing the uncertainty of a debt default. These reasons alone are enough to keep the Fed firm on their current easing programs without making any changes that could potentially have a further negative impact on the economy.
So How Is The Economy Actually Doing In The Face Of Uncertainty?
Unfortunately, there aren’t any good markers to determine how the economy is responding in the face of uncertainty. The job reports and other surveys of economic indicators are not being released as a result of the government shutdown. For the Fed’s next meeting on October 29th, they won’t be able to gauge their decision based on unemployment or inflation rates. With no foreseeable taper date, QE infinity may really be going to infinity and beyond.
As an investor, the impact of seeing QE drag on indefinitely could be profound on the economy. How long can the Fed keep generating extra cash without creating a spike in inflation, or other economic problems? For more information on how the uncertainty of the next several months could impact the economy and investments specifically, speak to a Redhawk Wealth Advisor near you today. By staying on top of the times, and making sure your investments are properly positioned to weather the storm, you can ensure your profitability in times of economic uncertainty.