The Fed Is Not Changing Its Mind--Yet

by Bill Conerly

Source: Forbes

The Federal Reserve announced todaythat it was continuing its program to buy $85 billion a month of Treasury bonds and mortgage-backed securities. All summer long market watchers expected the fed to taper down its bond-buying. Now we have yet another announcement of no taper at all. It sounds to many that the Fed has changed its plan.

Those who listened closely to the Fed know that nothing has really changed. I wrote back in June that the Fed Does Not Have A Plan. I meant, they did not have a fixed plan of when they would begin to taper their purchases. They did have a process for making that decision: when the economy is clearly growing at a solid pace, they will taper. What has changed is more subtle. Last spring, the Fed thought they would see signs of solid growth by now; turns out those signs are on back-order, and expected to be available in a few months.

I expect the Fed to wait at least several more months. At some point, probably early 2014, they will see signs of stronger growth, and then start to taper. Some will argue that this quantitative easing is doing no good. Most Fed members would probably agree that it has not done tremendous good, but they would also argue (I’m putting words in their mouths, of course) that it has done no harm, so why not continue?

What should a business leader do about this uncertain environment? I suggest making plans that will be flexible enough to enable a company to advance if the economy grows, but which also include some contingency plans for weaker growth. You might want to watch my video series on Business Planning With Risk of Recession.