why is there an expectation that the fed will taper stimulus this year?

[shaayecanaan]

Because I can't see how they possibly can or should. Inflation is still only 1.6%, well below target. Tapering could well push the US dollar into a deflationary spiral which is the last thing it needs right now, particularly as businesses continue to deleverage.

The government has no money and plenty of debt, with still many people requiring employment assistance. The fed itself has no room to move on interest rates and pretty much is only left with QE as its last remaining silver bullet.

Most of that QE is used to buy bonds now, and frankly the government probably needs every dollar to pay for the people still on unemployment.

The banks say that QE is fueling asset bubbles, although with inflation at 1.6% it can't be doing too much, and besides, its the banks that issue the loans that fuel the bubbles, particularly the huge increase in margin lending.

I can see why the fed would jawbone about tapering stimulus to talk down any asset bubbles, and they did reduce qe by 10 billion a month (BFD, they are still issuing 65 billion a month). But I can't see how they can possibly do more than that.

Am I missing something here?

[bigbrother05]

1. Think it relates to the unemployment rate

Has been said that when the rate drops to 6.5% the Fed would consider tweaking the interest rates. With the latest rate sitting at 6.7%, it is likely we'll hit the 6.5% mark this year and thus meet a major criteria for raising rates.

As you noted, there are other factors that should be considered, but the employment benchmark gets a lot of headlines.