St Louis Fed President James Bullard was on CNBC this morning. He made a few key points:
1) Inflation is too low, and Bullard would like to see “tangible evidence” that inflation is moving back towards the Fed’s goal of 2%. (Note: This was one of the four points I mentioned yesterday for the Fed to start tapering in December).
2) Bullard thinks the Fed should mostly ignore the “bickering in Washington”. From MarketWatch:
“It looks like they will be bickering in Washington for a long time to come. So
I don’t think we can afford to wait until the political waters are completely
calm before we decide to make a decision,” Bullard said.
My view is the FOMC will be more inclined to taper if the budget conference committee reaches an agreement by December 13th.
3) Bullard says the October employment report will be “hard to interpret”. I think we will see a sharp increase in the unemployment rate, but any increase related to the government shutdown should be unwound in the November report – so I don’t think anyone will panic if the unemployment rate jumps from 7.2% to say 7.5% (since there was an obvious reason). Payroll growth will probably be lower in October too.