Uncertainty Redux: This Time It Is Entirely Self Imposed

Uncertainty has reared its ugly head again. This time it is entirely self imposed. The congressional budget impasse and the potential spillover to the debt ceiling has elevated uncertainty and will likely depress business and consumer confidence in October. The National Federation of Independent Business’s Small Business Optimism Index for September has already shown a deterioration in expected business conditions six months down the road. Uncertainty emanating from Capitol Hill has affected Federal Reserve monetary policy. In his news conference after the September 18 “no-taper” decision, FOMC Chairman Bernanke linked his reluctance to dial down QE3 to concern about  potential drag from a federal government shut-down. See page 2 for more on the topic of the federal government shut-down.

With no September taper, QE-to-infinity rolls on. Chairman Bernanke has not yet publically backed away from his stated desire to begin the tapering process this year. Bernanke made no mention of current monetary policy in his most recent speech on October 2nd. There are two FOMC meetings left on the calendar for this year, October 29/30 and December 17/18. The longer the government shutdown extends, the less likely it is that the FOMC will begin to dial back its asset purchase program in October. We may have already crossed that line in the sand for some FOMC members. This leaves December 18 as the more likely (but hardly the MOST likely) date that taper-lite will be announced. The decision could easily be rolled back to the January 28/29 meeting, which is expected to be Chairman Bernanke’s last meeting as a member of the FOMC. Or, it could get pushed further back to March 18/19, which is expected to be Janet Yellen’s first meeting as the new chairperson of the FOMC. Or it could go even later, to April 29/30 or beyond.

One side-effect of the government shut-down is that we are flying blind in terms of much of the usual economic data (or at least blinder than normal). Labor market data for September, including the unemployment rate and monthly payroll job growth, was not released at the expected time on the first Friday of October. Private data sources, such as the Institute of Supply Management (ISM) and ADP are unaffected. Also, the Federal Reserve’s data releases are continuing normally.

US Monthly Economic Update_ 10082013

For a PDF version of this Comerica U.S. Monthly with tables and charts, click here: USEconomicUpdate1013.

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