Fed won’t reassess taper until April at earliest, analyst says

The Federal Reserve will stay the course and continue to trim bond purchases by $10 billion at their meeting next month, putting off a “broader reassessment” of central bank policy until April or May, when uncertainty about the economy should abate, said Adolfo Laurenti, deputy chief economist at Mesirow Financial, on Tuesday.
“There s is enough consensus within the Fed to continue to do what they are doing,” Laurenti said in an interview with MarketWatch on the sideline of the National Association for Business Economics meeting.
If there is another weak jobs report, “the chances for a much broader reassessment of what the Fed is doing are more likely in April or May when we have the first quarter under our belt,” Laurenti said.
For economists, “the real challenge is we are flying blind” on how much the economic data is distorted by the weather, Laurenti said.
Car sales and home sales are expected to snap back after the cold spell ends, but spending on smaller discretionary items is more uncertain, he said.
The Fed is likely to get rid of  a specific unemployment rate threshold for the first rate hike.
At the moment, the Fed has said it would hold rates steady until “well past” the point where the unemployment rate drops below 6.5%.
Laurenti said he was not sure how financial markets would react to the less-specific guidance.
“There will be a tug-of-war” between the market and the Fed over guidance.
“Walking away from the 6.5% threshold will cost the Fed in terms of certainty they want to provide the market and maybe credibility. But at the end of the day, I think the Fed is willing to pay a small credibility price,” he said.
– Greg Robb