There has been much debate over the last 8 months over when the Fed will taper its $85 billion per month quantitative easing (QE) program.
After being prepped for a taper by Ben Bernanke and the rest of the Federal Reserve all summer, Wall Street was nearly 100% sure it was going to happen in September.
But then it didn't.
So the guessing game has commenced again.
In 2013, there is just one meeting left, in December, and most Fed watchers give low odds of a taper at that meeting.
Consensus says that the Fed will taper sometime in 2014.
But what if the consensus is wrong? What if the Fed doesn't taper at all in 2014?
St. Louis Fed President James Bullard, a member of the Federal Open Market Committee, recently said in a Nov 1, 2013 presentation, mirroring what Ben Bernanke and other Fed officials have also said, that the Fed's decision to taper depends on the data.
On employment levels he said:
"To the extent that key labor market indicators continue to show cumulative improvement, the likelihood of tapering asset purchases will continue to rise," Bullard said.
"This is because the Committee’s 2012 criterion of substantial improvement in labor markets gets easier and easier to satisfy on a cumulative basis as labor markets continue to heal."
However, he cautioned that "the Committee also wants reassurance that any progress made in labor markets will stick."
On inflation he said today on CNBC:
There's been "substantial progress" in job creation, Bullard said, but also noted that inflation remains low. "[So] what's the hurry" to taper the asset purchase program, known as quantitative easing. He would like inflation to head back toward 2 percent.
He also didn't seem too concerned about the Fed's balance sheet rising above $4 trillion.
He also said he sees "room on the balance sheet," which is approaching $4 trillion. "If you look at the size of the balance sheet relative to GDP, who's got the biggest one, Japan, Europe, U.K., U.S.? We're fourth out of those guys," he continued.
"If something bad is going to happen ... with the balance sheet, these other central banks should have passed that and already had that experience and they haven't."
What are the odds the Fed doesn't taper AT ALL in 2014?
A. 0%- because it WILL taper.
B. 50%- depends on if employment improves further and inflation picks up.
C. 100%- once it starts a QE program, it can't end it. Inflation is still too low. The Fed is worried about deflation if it ends QE. Therefore, there will be $85 billion a month in QE until 2015.