For the better part of 2013, the assumption that the Federal Reserve would soon be tapering its $85 billion-per-month bond-buying program has been a safe one. But it appears those speculations may have been misguided.
According to multiple recent reports, the Fed is in no hurry to reduce the current pace of its purchasing program. Multiple officials cited by Reuters offered insight into the collective mindset associated with the direction of the quantitative easing program, but remained intentionally vague as to the timetable within which any reductions might occur.
Need to see the proof
Clearer signs of overall economic improvement are what Fed officials claim they seek before committing to quantitative easing policy changes. Chairman Ben Bernanke has offered 6.5 percent as a benchmark for the rate of unemployment - the primary factor capable of potentially moving the needle toward tapering. National joblessness fell to 7.2 percent in September, indicating further gradual improvement, but the Fed did not budge on its spending pattern.
Quantitative easing entered its 14th consecutive month in November, and the goals remain the same. By buying long-term assets on a monthly basis, the Fed boosts investment and minimizes borrowing costs. The bond-buying program also directly influences mortgage interest rates, as the infusion of Federal money into the market serves to limit the amount of compensation lenders must account for. Rates rose to the 4.5 percent range during the summer based on the reported tapering scheduled for September, but have otherwise stayed low by historical standards throughout the year. And they will remain manageable until the progress the Fed deems necessary is exhibited.
Governor of the Federal Reserve Jerome Powell referred to the timetable for any tapering plans as "necessarily uncertain," according to Reuters, since the broad economic growth that would precipitate it is gradual and rather uncertain in nature.
"What it's reasonable to expect us to do is to be transparent and to move gradually when it is time to withdraw accommodation, or even to begin reducing the pace at which we add accommodation and go slowly in doing that," Powell told the assembly at the recent Asia Economic Policy Conference in San Francisco.
Powell also reiterated that it is the Federal Reserve's obligation to adjust only as demand necessitates, and that there is therefore no rush to change course in terms of its purchasing program.
No rush to reduce
Another gradual drop in unemployment during the third quarter - from 7.8 percent to 7.2 percent through the end of September - combined with a swollen Fed budget sheet that currently totals a record $3.8 trillion has had many investors and analysts speculating that the timetable would become more clear. But St. Louis Fed President James Bullard recently explained to CNBC that timing is not as much of a factor in the decision as evidence of the necessary gains.
"For me, you don't have to be in a hurry because of low inflation," Bullard said, while adding that he would like to see inflation come closer to the 2-percent mark set as a goal by policymakers before tapering could be seriously considered. It has run closer to 1 percent for much of 2013.
Boston Fed President Eric Rosengren offered some hypothetical timetables that highlighted the fact that difference in impact between one tapering start date and another would be minimal if the evidence of economic recovery sought by the central bank is not first exhibited. The most aggressive approach proposes reducing bond-buying to $75 billion in December, $50 billion in January, $25 billion by March and completing the program altogether by April. But more likely is a wait-and-see approach, for which there would little penalty.
"Start dates differing by a quarter or two would generate only relatively small changes in the overall size of the Fed's balance sheet," Rosengren recently told the University of Massachusetts-Boston. "That is certainly one reason for being patient - waiting until evidence of a more sustainable recovery is more clear-cut - before beginning any reduction in the size of the purchase program."
Bullard has dismissed any speculation that the recent government shutdown - or potential default after the New Year - might play a role in policy decisions moving forward.
"I think we can't really wait for the political situation in Washington to be just right because, evidently, they could be bickering forever," Bullard told CNBC.
Fed officials have also downplayed any impact the impending transition in leadership might have. Bernanke is due to step down from his post after the New Year, and will be relieved by Vice Chair Janet Yellen. Yellen, by all accounts, will maintain policy regarding bond-buying when she assumes the primary leadership role.
There's no reason not to believe that will be the case. If anything can be ascertained from the events of the past year, it's that the Federal Reserve is in no hurry to alter its course.