The Federal Reserve shouldn’t begin winding back its $85bn-per-month bond-buying program without waiting to consult economic data that was delayed by the government shutdown, says a Fed official.
Federal Reserve Bank of Chicago President Charles Evans said Thursday that the 16-day shutdown halted the collection of data the Fed would need to make an informed decision about tapering the stimulus program, according to a Bloomberg report.
“Only the data can tell us how much progress we’ve made and they aren’t saying much right now,” Evans said in a speech Thursday. “The data available in September were inconclusive, and since then, incoming information has been silenced with the federal government shutdown.”
The shutdown, which ended Thursday after 16 days, sucked $24bn out of the economy and reduced fourth-quarter economic growth by 0.6%, according to Bloomberg. Hundreds of thousands of federal employees were furloughed during the shutdown – including employees at the Department of Labor and the Department of Commerce, which produce reports on economic growth, inflation and unemployment. In the absence of those reports, Evans said, the Fed should continue the stimulus – known as QE3, or the third round of quantitative easing -- until it can confirm that the economy has rebounded sufficiently to taper.
“It is not yet time to remove accommodation,” Evans said. “The data are still not definitive enough to say that now is time to adjust the QE3 flow purchase rate.”
Most investors thought that the Fed would begin to taper in September, leading mortgage rates to spike more than a full percentage point over the summer. When the Fed surprised the market by leaving the program in place for the moment, rates fell slightly – although they still haven’t hit the lows of this spring.