Fed never grabs punch bowl in December, analyst points out

More than one economist believes the Federal Reserve’s decision this week on whether to start to pull back, or taper, its bond-buying program is a “coin toss.”

Tipping the scales against a more for many economists is one relatively simple factor: the calendar.

The Fed doesn’t like to begin engineering less-easy policies at the end of the year, said Robert DiClemente, head of the U.S. economics team for Citigroup. In fact, the Fed hasn’t done it in the last 40 years.

Over eight major interest-rate policy cycles dating back to the early 1970s, all have begun in either the first or second quarter, DiClemente said.

“Year end markets have never been a good staging ground for anything that even hints at initiating a less accommodative policy thrust,” he said.

Many traders have closed their trading books for the year and markets may be less resilient to any miscalculation, said Lou Crandall, chief economist at Wrightson ICAP.

Crandall said there wouldn’t be a debate about a taper if it weren’t for year-end concerns.

DiClemente thinks the Fed will issue a “more confident” statement on the outlook or some guidance from Fed chairman Ben Bernanke that the scaling back will start in the first quarter and be completed before the end of the year.

But, like most Fed watchers about this week’s meeting, DiClemente hedged his bets, saying “the potential for some level of surprise.” http://blogs.marketwatch.com/capitolreport/20...oints-out/