US Fed Likely to Assess Shutdown Impact Before Deciding on Tapering

The US Federal Reserve is likely to delay its planned stimulus cut until early next year as it plans to assess the current situation of the economy after the adverse impacts of the partial government shutdown.

Chicago Fed President Charles Evans said the central bank needs a couple of meetings to decide on the tapering of its bond buyback programme.

"We need more information about how the economy is proceeding, how we are going to weather the most recent government shutdown," Evans said in a speech to a real estate conference in Madison, Wisconsin.

"The data are still not definitive enough to say that now is time to adjust the QE3 flow purchase rate," he added.

"I think the most likely outcome is one where we continue to go for a couple of meetings to assess this."

The next two Fed meetings are scheduled on 29-30 October and 17-18 December.

That suggests that the Fed would have to wait until early next year to begin scaling back its massive asset purchase programme.

"It would be not worth your while for me to speculate about whether it's going to be in December, January, March... we are going to have to see how things are going," Evans added.

"I believe this programme should continue until we are confident that there has been a sustainable improvement in the labour market... it is not yet time to remove accommodation."

Meanwhile, Dallas Fed President Richard Fisher expressed the same opinion, saying he will wait until the Fed's December meeting before pressing on a reduction to the Fed's $85bn (£53bn, €62bn) per month stimulus programme.

"Given all this uncertainty it would be hard for me even to argue a change in course of monetary policy. I don't like the course we're on... but my view will be to stay the course at the next meeting," Fisher said in New York.

In a great relief for global markets, the Fed held its asset purchases steady on 18 September. Fears about the tapering resulted in increased money outflow from emerging markets and deep slides in their currencies.

Shutdown Impact

The US government entered into a partial shutdown on 1 October after its parliament failed to pass the budget for the next fiscal year.

Hundreds of thousands of federal employees were forced to go on unpaid leave and government offices were closed for more than two weeks. The opposing Republican Party had wanted Obama to modify or eliminate his signature healthcare programme in order to pass the bill.

The shutdown is estimated to have cost the US economy hundreds of millions of dollars per day, dragging down economic growth.

In addition, the IMF and World Bank warned that the shutdown and debt ceiling crisis will result in grave consequences for the global economy. The country's largest creditors including China and Japan also warned the country about a possible defaulting on its bills.

On 16 October, the US Senate and the House of Representatives agreed on a last-minute deal to end the shutdown and raise the country's debt limit. US President Barack Obama subsequently signed into law the bill approved by the Congress.