Back in the first half of September, the consenus of expectation was that the Fed would announce a reduction in stimulus at the then imminent September FOMC meeting.
The minutes from that meeting show that one of the reasons the Fed didn’t taper was a concern that ‘risks were viewed as skewed to the downside’, with ‘the resolution of federal fiscal policy issues in the coming months’ cited as one of the reasons behind that concern.
How prescient that now seems.
Just a few weeks later, there has been a major rethink with regard to the Fed’s likely timetable. Richard Fisher, President of the Dallas Fed and previously an outspoken critic of the extended duration of the Fed’s stimulus, admitted last week that October’s FOMC meeting was an unlikely candidate for the introduction of a reduction in stimulus, saying ‘This is just too tender a moment.’
On Tuesday, President Obama’s chief economic advisor said the shutdown likely trimmed fourth-quarter GDP growth by 0.25%, while today’s drop in the October PMI manufacturing index adds further evidence of the economic cost of the shutdown.
Many analysts now foresee Fed tapering being delayed until 2014. The change in tapering expectations has been pushing the dollar lower and this makes gold more attractive as a store of value. Late in the New York trading session, spot gold had risen 1.15% to $1349 per troy ounce.