I don’t agree but here it is from Goldman:
The employment report caps a month of mostly encouraging data. Our current activity indicator (CAI) picked up to 2.6% in June and our US-MAP surprise index stands at +0.8 standard deviations. Neither reading is stellar, but both are near the top end of the range seen over the past year. We therefore now believe that the FOMC will start to taper QE at the September meeting. We have also pulled forward our forecast for the end of the program to mid-2014, in line with Chairman Bernanke’s guidance at the June 20 press conference that the program will end when the unemployment rate hits 7%. However, our forecast for the first hike in the funds rate remains early 2016.
Pulling forward the timing of the QE tapering forecast was not an easy decision on our part. For one thing, it is not a done deal. Our own GDP forecast for the second half is below the Fed’s. If the data weaken anew over the next couple of months, inflation falls further, or financial conditions tighten sharply, the committee might decide to postpone tapering to the December meeting or beyond. More fundamentally, our own view is that Fed officials are taking an unnecessary risk in exposing the US economy to tighter financial conditions at the first signs that the recovery is finding its footing. With inflation well below target and large amounts of slack in the labor market, where is the upside in being early?
The upside is in preventing a bubble from getting completely out of control. Whether it can be deflated without deflating the recovery is the question.
