Facts left behind in debate over timing of Fed tapering

Now that the United States government is functioning again, at least until battles resume in the new year over the debt ceiling, markets will begin to twitch over the question of when the Federal Reserve will begin its tapering of quantitative easing.

Fierce argument has already begun about when the Fed will start to cut back on the easing, so expect plenty more unsettling gyrations in stock and bond markets and in currencies. But hold on, can we please have a proper debate about major policies and their consequences before going full steam ahead with potentially disastrous results?

Quantitative easing and its tapering is a prime example. The people who are the most important supposed beneficiaries, the unemployed who will get jobs as QE pumps money into the economy and restores confidence, do not get a say, of course. But there are powerful vested interests at work influencing the debate. Worst of all, there is too much sloppy thinking and reporting going on.

The Financial Times speculated on its front page last Friday that the Fed could begin cutting its asset purchases as early as December. Morgan Stanley, on the other hand, gives a 5 per cent likelihood of tapering next month, 10 per cent for December, 30 per cent for January, and 50 per cent for a March start.

When you think about it coolly, December tapering would have the advantage of taking some of the heat off Janet Yellen (assuming she is confirmed as Fed chairman), so she does not need to initiate a controversial process when she takes over from Ben Bernanke in February.

But major market players may try to obstruct any such thoughts by getting nervous over fresh convulsions about the debt ceiling or indeed over the very thought of tapering.