We do not think the Fed will taper in 2013 and here’s why:
A. Unemployment rate drops below 7%
AND (not or)
B. Inflation rises to 2%. Actually, one could argue that deflation is more of a concern right now than inflation.
2. Yellen’s In, Bernanke’s Out:
Another reason is that Janet Yellen is expected to take over in January and she is a big proponent of QE. So, from our point of view, the likelihood that the Fed tapers in December is not very high.
Finally, the Fed knows that the Q4 shopping season is very important for the overall economy. If the Fed were to taper a few weeks before Xmas, that would surely hurt sentiment, stocks, & the economy. Based on everything the Fed has told us, we highly doubt the Fed will go out of its way to hurt the economy right now.