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Fed follies: More drama than comedy

By Mark Hamrick ·
Monday, September 16, 2013
Posted: 5 am ET

The Federal Reserve meets this week amid confusion about what it plans to do next. The question is whether the central bank is ready to take its foot off the gas pedal, as Chairman Ben Bernanke likes to say. It is undeniable that the Bernanke era is coming to a close, meaning someone else will be driving the central bank car.

Bernanke's term ends in January. With President Barack Obama operating in Syria crisis mode, announcing a nominee to guide the Fed appears to be a lower priority for now. Between decisions on monetary policy and Fed leadership, there's much at stake for consumers, investors, borrowers and savers. That's basically all of us.

Economic releases

  • The Federal Reserve reports on industrial production: Monday at 9:15 a.m. (all times Eastern)
  • The Labor Department releases the consumer price index for August: Tuesday at 8:30 a.m.
  • The Federal Reserve concludes a two-day meeting and Chairman Ben Bernanke's news conference: Wednesday afternoon
  • The Conference Board releases the index of leading indicators for August: 10 a.m. Thursday

Fedspeak: What's tapering, again?

Over the past year, the Fed has been buying $85 billion a month in assets, hoping to boost the economy. The eventual reduction on the purchases has come to be known as "tapering." But the strategy continues to have mixed results, with stocks soaring and the housing market improving, but unemployment persistently high.

The Fed has said it would continue the purchases, dubbed QE3 for the third round of quantitative easing, until there's "substantial improvement" in the job market. An example how that's not been working out so well is the employment report released earlier this month. Yes, the jobless rate went down to 7.3 percent, but only because more than 300,000 people stopped looking for work, and not because they had jobs.

Dysfunctional Washington

Although it has yet to rattle financial markets, the U.S. economy is once again being put at risk because politicians don't do their jobs. One part of that is the risk of a federal government shutdown Oct. 1 with failure to approve a budget. The other risk involves the debt ceiling. Unless Congress lifts the debt limit above $16.7 trillion, the Treasury may not be able to pay its obligations. That in turn, risks a government default. Sound familiar? Yes, we've been here before.

Critics, questions abound

If the economy is still struggling and many people are out of work, how can the Fed begin taking away some of the financial steroids? Lindsey Piegza, chief economist for Sterne Agee, is among those puzzled. Says Piegza, "Either the economy is strong enough to support tapering or it's not. It really doesn't make sense at this point for the Fed to pre-emptively begin to roll back any sort of accommodation if the economy is not strong enough."

Token gesture?

Could there be a tiny taper put in place by the Federal Open Market Committee just to get the process started? That's one possibility, according to economist Paul Edelstein at IHS Global Insight. In a report, he says "there is a decent chance that the committee will trade a token taper (perhaps $5 billion) for a lower unemployment threshold for raising short-term interest rates." That's because while the unemployment rate has fallen more than the Fed expected, the economy still isn't seen as robust. Edelstein says interest rates could bounce around after the Fed announcement because the central bank could be seen raising interest rates sooner than thought.

So between the Fed taking its foot off the proverbial gas pedal, problems with interpreting the Fed's intentions and financial inaction among members of Congress, it could be a wild ride.

This week in business history: Football, anyone?

On Sept. 17, 1920, the American Professional Football League was formed in Canton, Ohio. Two years later, it was renamed the National Football League, or NFL.

Nearly a century later, football is big business. According to Forbes, the average NFL team is worth nearly $1.2 billion. At the top of the valuation list is the Dallas Cowboys, worth $2.3 billion.

Follow me on Twitter @hamrickisms.

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