Without much ado, this is very much to the point.
John Makin starts off:
The Fed needs to stop playing taper ping pong. In June, the Fed’s statement after its meeting scared markets by suggesting that tapering/tightening might begin as soon as September. In September, the Fed acknowledged that the June tapering scare had tightened financial conditions and so hinted that they might not taper until winter 2014.
At its October 30 meeting, the Fed removed from its statement an expression of concern about tighter financial conditions while leaving the rest of its statement largely unchanged from September. Markets concluded that tapering would begin sooner than they had guessed after the September meeting [Jon Hilsenrath said “December taper not off the table”]. Stocks and bonds sold off while the dollar strengthened. In reality the Fed’s position was virtually unchanged. Tapering won’t begin until the economy improves. Nothing was said about what the Fed will do if the economy gets worse.
Taper ping pong is increasing the chance that the economy will stagnate, as underlying monetary and fiscal drag pulls the growth rate below a 1% pace. After its December meeting, the Fed might want to hint at what it will do if the economy is weaker than expected instead of only talking about how it will taper sooner if the economy gets stronger.
Makin´s AEI colleague James Pethokoukis would conclude that “an NGDP target is needed”