You know that members of the Fed have been hinting since June that the central bank wants to scale back on its $85 billion a month bond-buying program, the third round of what's known officially as quantitative easing.
- Is This What Happens When the QE Taper Starts?
- What a QE Taper Means for Markets and the Next Fed Chair
- You can Figure out When the Fed Might Start Tapering
On Tuesday, Federal Reserve Bank of Chicago President Charles Evans announced that he wouldn't be surprised if the central bank begins to taper its $85 billion monthly bond-buying program in September.
Evans is the third official this week to signal a QE taper. Richard Fisher, president of the Dallas Fed, and Dennis Lockhart, president of the Atlanta Fed, parroted Evans' sentiment.
While Fisher indicated he would prefer to cut back bond purchases in August, Lockhart stated a preference for a September QE taper, although the Fed could wait longer if economic growth and unemployment trends reverse.
But it is Evans' announcement that is the most important. Evans is a member of the activist wing of the Federal Reserve. These members strongly support unconventional monetary policies such as bond buying, which are designed to reduce borrowing costs to spur aggregate demand and hiring across the country.
His views reflect those of the majority of members of the FOMC, the Fed's monetary policy committee.
Although you might think the markets simply respond any time Ben Bernanke sneezes, his "cold cycle" is not one of the indicators that will spell the slowing
and eventual cessation of the printing press at the Fed.
There actually is a mathematical formula used by the Federal Reserve to determine when to stop the presses.
I could give you the formula and it would look like this:
POP2 = [1-(%∆POP) m*m] *POP1.
Or, I could share the link to the Federal Reserve's Jobs Calculator in Atlanta.
This is the same calculator used by the Fed to determine when the jobs market and the unemployment rate will align properly. And when they do, it will signal to the Federal Reserve that it might be a good time to start tapering its $85 billion a month bond buying program.
This is what needs to happen: The economy will have to show new job growth.
The Fed is looking for the creation of 150,000 to 200,000 new jobs each month for 6 months. This is how we look now: