09/30/2013 06:40 pm ET Updated Nov 30, 2013

Good News/Bad News Economy Threatens a 2013 Taper

The Michigan Consumer Confidence Index for September, released on Friday Sept. 27, fell by 4.6 points to 77.5, its largest decline since December 2012. This continues the tendency for a disjointed economic picture with positive economic news quickly being tempered by weaker numbers.

The weekly unemployment claims released Sept. 26 showed a reduction in claims and the lowest four-week moving average for claims, 308,000, since June 2007.

Andrew Wilkinson, Chief Economic Strategist at Miller Tabak & Co., says, "The dip in consumer confidence likely reflects recent fears surrounding both fiscal battles brewing in Washington and a possible government shutdown as well as fears of moves by the Fed to reduce its stance on policy stimulus."

I expressed surprise over the surprise in the lack of tapering at the September FOMC meeting. I thought the weak August employment situation report released earlier this month ended the chance of a tapering this month.

Last week, I went back and listened to Federal Reserve Board Chairman Ben Bernanke's opening statement at his press conference last week and it is clear that he has no commitment to tapering any time soon. He expresses worry that "tightening economic conditions could slow growth," which he already has described as moderate.

To Wilkinson's point, Bernanke also expressed worry over the "impending fiscal debate".

While the next FOMC meeting ends Oct. 30, roughly two weeks after the deadline, if Congress and the President only come to some temporary accommodation or continuing measure and there is still a chance of a shut down or a permanent resolution on the debt ceiling is not reached, that would prevent tapering.

Also, Bernanke once again tied any tapering to economic conditions and noted policy is not on a pre-set course.

What seems clear is although there is not anything the Fed Chief would like to do more than begin unwinding the $85 billion in monthly Fed purchases, he is not going to do it absent additional evidence of labor market health. And he definitely will not do it if there is a chance of a government shut down or government default.

It seems too many things have to go right for the Fed to taper at the October meeting. And a whole lot of things need to go right for them to taper in December, though given his earlier commitments, a small reduction at the December meeting is possible as long as our politicians act like adults and economic reports do not become worse.