The new buzz word in the markets is “taper.” It refers to the Federal Reserve cutting back on the massive stimulus the central bank has been pumping into the economy. Not stopping the stimulus, but “tapering” the Fed’s bond-buying program known as quantitative easing, or “QE.” So now the guessing game on Wall Street is when will the taper process begin and by how much.
The stakes are huge. Getting the timing right or wrong could impact the security of your retirement, the performance of your investments and the overall health of the U.S. economy. Stocks have surged since the Fed launched the stimulus program and interest rates have been super low making it cheaper to borrow money for businesses and home buyers. But when the Fed pulls back, stocks could sell off, interest rates could spike and that could damage the economic recovery.
On Monday, I talked to one of the most outspoken critics of the Fed’s stimulus program. Charles Plosser is the president of the Federal Reserve Bank of Philadelphia and a member of the Fed’s committee that sets monetary policy.
He told me that as far as he’s concerned, it’s time now for the Fed to slow down its bond-buying program. He said the Fed has done enough to stimulate the economy and the economy is “getting stronger” and “doing better.” He would like to see his colleagues on the Fed to agree at next week’s policy meeting to begin the stimulus tapering process.
“I would begin the scaling back, toning down the dial,” Plosser said.
However, he acknowledged that policymakers are “struggling with how to calibrate” the unwinding of the stimulus. It’s something, he says “we don’t have a lot of experience with.”
(Read More: The Fed’s Hawks and Doves)
Plosser also talked with me about the impact of this big decision on the housing recovery and the stock and bond markets. He said there would be volatility in the markets, but the “person on Main Street, the person looking for a job, or the company trying to hire a person for a job, will largely be unaffected by this.”
Let us know what you think. Is the economy strong enough to grow without Fed support?