So the Taper Ends, then What?

As the Fed winds down one of the most ambitious Quantitative Easing campaigns in history, there’s a prevailing echo resounding through the checkered hallways of the Treasury Building that seems to murmur … “now what?”

Are we recovered? Can the economy move forward without Federal support? Can America unequivocally stand on her own? These are all good questions to ask, and for which there are no clear answers. Welcome to the new Post-Easing period of wild uncertainty. We have crafted a new economic watershed by which all loose monetary policies will forever be compared.

The Fed’s balance sheet currently sits at an astounding $4.3 trillion. Staggering … but is it a fair ransom for rescuing the world’s largest economy? There is plenty of second-guessing as to the current health of America’s economic engine along with concern about the Fed’s massive stockpile of bonds. The truth is the US recovery has been painfully slow and economic data has been astonishingly inconsistent with ups and downs that have kept the Fed ill at ease and measured in their approach to monetary policy. Nothing has been consistently good and despite some bright spots, there remains underpinnings of trouble.

While job creation was up dramatically in June, it slowed in July as the economy added fewer jobs than expected. While GDP rose in the second quarter of this year, inflation also rose by more than 60%. While pending home sales jumped by more than 6% in May, sales of existing homes plummeted in June by more than 8%. While US manufacturing was up in July, it slowed in pace from the prior month as did new orders and employment.

The Fed continues to reduce its monthly bond purchases, now down to $25 billion a month, but seems reluctant to deviate from its current, near-zero interest rate policy. Thus far Janet Yellen has been careful, guarded and very unwilling to declare either a robust or a sustained recovery. A quintessential dove, she has turned a blind eye to inflation and expressed deep concerns about the millions of unemployed Americans. With a Labor Participation Rate still at a historically low 62.8%, it appears that she very well should be.

So, this largest federal bailout in US history has been underwhelming at best. Many experts assert that QE simply bought us time but did not provide us with lasting economic solutions. While the program appears to have somewhat stabilized a spiraling economy and helped kick-start GDP, it also constituted  a massive accrual of new debt that may ultimately damage the dollar, trigger a new inflationary era, ramp up the global currency war, and cost more for the United States to borrow money.

And now the government is left with all of those bonds. Will they hold them or sell them? How fast or how slow? Will they ever get Federal Debt under control again? And how long will it take to clear out the QE bloated, Federal balance sheet?

We are left with many vexing questions, the answers to which will directly impact the future momentum of the markets, the value of real estate, the price of everyday necessities, the cost of critical commodities, and the value of countless retirement and savings accounts.

As the final curtain is drawn on QE, few are calling it an economic masterpiece and the American consumer should be looking to protect themselves from the brewing volatility and the pronounced uncertainty of the uncharted territory that lies ahead.