The Hazy Shade of Monetary Policy

I think that this week’s weather is exactly what Paul Simon (or The Bangles if you are younger) envisioned by “the sky is a hazy shade of winter”—except that there is more than just “a patch of snow on the ground”.

 

hazy

 

Like the weather, the markets are quiet—if not cold—in the absence of earth-shattering economic data today and ahead of next week’s Fed meeting where there exists a 25% chance of QE tapering to begin.  Will the Federal Open Market Committee see that our economy is in fact improving enough to justify scaling back their purchase of long-term investment vehicles and consequently allowing interest rates to return to more natural levels?  Or do they, like 83% of those polled by CNBC this week, still rate the economy as “fair/poor” despite increasingly (though incrementally-challenged) better numbers reflecting economic growth?  Beauty, they say, is in the eye of the beholder.  And in this case, the 12 voting members of the FOMC (comprised of five Reserve Bank presidents and seven Fed Governors) are the beholders of the future of interest rates—if they can see through the haze that is.