Fed Tapering: Economy Without QE May Not Look Much Different, Here’s Why
Fed watchers have had their eye on September for the start of the central bank’s retreat from bond purchases. But reports now suggest that the turmoil in Syria and resulting market jitters, along with a mid-October debt ceiling deadline and an emerging market selloff, may delay the taper start date.
Related: Oil Hits 2-Year High as Strikes Against Syria Expected “Within Days”
The debate over when and how the Fed will taper is likely to continue until it actually begins. But what happens after the Fed starts weaning markets and the economy off of all that QE? And what happens when the support is completely gone?
Related: Fed Tapering Will Cause Markets to Freak Out: Heidi Moore
The Daily Ticker asked Amar Bhide, author and professor at the Fletcher School at Tufts what he thinks. Bhide recently wrote a New York Times Op-Ed extolling the virtues of nominating a “boring” leader to succeed current chairman Ben Bernanke at the Fed. He pooh-poohs the Fed's experimental, unprecedented monetary policy efforts -- “running what amounts to a hedge fund on steroids” -- and touts the importance of the its role in overseeing banks and “managing a regulatory bureaucracy.”
Bhide doesn't "think anyone has the foggiest idea" of what the impact will be when the Fed starts to taper, least of all him. It could go smoothly or there could be chaos in the markets, he tells The Daily Ticker. But for the broader economy, which has been backed by trillions of dollars in QE stimulus since the financial crisis, Bhide says the impact will be limited.
Related: S&P 500 Headed to 1770 Even If Fed Tapers: S&P's Gibbs
"I don’t think QE has had a huge impact on the real economy except in a few sectors and places," Bhide says. That's is why he doesn't think the withdrawal of QE will have a huge negative impact on the economy, with one caveat. Check out the video to see what it is.
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