"Five main arguments for the Fed's decision to postpone the taper have frequently been proposed. One view is that the Fed recognised that its specification of policy thresholds (based on the unemployment rate) understated the vulnerability of the US labour market. Another is that officials worried about excessive financial tightening after Bernanke's mention in May of a possible taper, jeopardising the economy's gradual recovery.
Moreover, some believe that the Fed considered the possibility of adverse feedback loops associated with the financial dislocations in emerging economies. Others see in the decision to postpone the taper an effort to pre-empt the negative effects on the economy of a possible congressional debacle over government funding and the debt limit. Indeed, the final argument – in a sense underpinning the others – is that the Fed became less worried about the potential for collateral economic damage from prolonged reliance on unconventional monetary policy".
"With Yellen's nomination to succeed Bernanke, one Fed guessing game has ended. But, as speculation over the direction of monetary policy continues – indeed, intensifies ahead of the Fed's next policy meetings – we should not lose sight of an uncomfortable reality: No matter how hard it tries – and it is trying very hard – the Fed is still stuck with tools that are too blunt, and whose effects are too indirect, for the challenging tasks at hand".
Mohammed El-Erian
theguardian
Project-Syndicate
