News Tip: Federal Reserve Move to Reduce Bond Buys 'A Good Start to The Taper'

Economist Connel Fullenkamp says gradual reduction comes at right time

The Federal Reserve announced Wednesday it will start reducing its massive economic stimulus program starting in January.Connel R. FullenkampProfessor of the practice and director of undergraduate studies, Economics Department, Duke University.cfullenk@econ.duke.edu specializes in economic policy, financial market development and regulation of financial markets. He has been a visiting scholar and consultant at the IMF Institute of the International Monetary Fund in Washington, D.C., since 1999. In this role, he has designed training courses in financial regulation for the IMF Institute and then taught these courses to groups of government officials around the world, working alongside IMF economists.Quote:"The Fed's move to reduce monthly bond purchases by $10 billion per month is a good start to the taper, and it comes at the right time.""It's a good start to the taper because it's sufficiently gradual -- the Fed has only reduced the amount of bonds it will be purchasing by a little over 10 percent, starting in January. The market's strong reaction this past June to the mere possibility of tapering shows that the Fed will have to take a gradual approach -- if for no other reason than to give the markets time to adjust their attitude and realize that there is life after quantitative easing.""The size of the taper is also good because it reflects the mixed messages we continue to receive from the economy. Growth finally looks like it's picking up, but we still aren't receiving consistent and broad-based signals that it's really here to stay. In particular, inflation may actually be falling. We expect it to rise, at least a bit, during a robust economic upswing.""The muddled state of retail sales information, due to the changes in store openings around Thanksgiving, has also greatly clouded the picture. A $10 billion cut in the amount of bonds purchased is a way for the Fed to get ahead of the curve without reducing the monetary stimulus too much. If the numbers in January don’t look good, the cut is easily reversed with little harm done to the markets or the economy."                                  _        _        _        _Duke experts on a variety of other topics can be found at