The president of the Federal Reserve Bank of Chicago, Charles Evans, said Monday morning in an interview on CNBC that the recently ended government shutdown has thrown U.S. fiscal policy into disarray and that it could take some time for Congress to sort itself out. As a result, a start to the Fed’s tapering of its $85 per month asset purchases is unlikely to occur at the FOMC’s November meeting.
Chances for a December start are also questionable. Evans said, “I think we need a couple of good labor reports and evidence of increasing GDP growth and it is probably going to take a few months to sort that one out.”
The recent solution to the government shutdown and extension of the federal debt ceiling are only temporary. A longer-term solution may be forthcoming, but there are no guarantees. Believing that the both political parties magically will find common ground and the will to adopt a fiscal 2014 budget by January and raise the debt ceiling by February surely qualifies as wishful thinking, given recent experience.
Evans also said that he did not believe that the Fed’s asset purchases are juicing an asset bubble. He argued that corporations are performing “pretty well” and that is what is driving the rise in equity prices.
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