In short: Expect the Fed to stay on plan
Don’t look for Fed policymakers to make any changes on the tapering front when they meet next week. While December’s unexpectedly weak jobs report may have sparked concerns that the policy-setting Federal Open Market Committee (FOMC) could back off the planned $10 billion in cuts to the monthly asset-purchase program known as quantitative easing, the reality is the employment report was likely a weather-related quirk—all other evidence points to a strengthening labor market. Moreover, while the recent declines in global stock markets and rally in Treasury bonds linked to concerns about emerging-markets’ economic and financial asset performance are risk factors the FOMC is sure to discuss, they likely are insufficient to delay tapering. The focus should be on any language changes in the post-meeting statement regarding the FOMC’s assessment of labor market conditions, and whether they indicate recent financial market performance presents a risk to its economic outlook.