Why No Tapering by Fed?

The Fed spit the bit. But then, it kind of had to.
Surprising nearly all Wall Street economists, the Federal Reserve postponed from its long-awaited, much-debated move to pull back on buying $85 billion a month of bonds to stimulate the economy. The Fed pulled its punch at the last minute, announcing Wednesday that it will keep up its purchases — after a mere hint of new policy spiked mortgage rates enough to add $120 a month, or 16%, to the monthly payment on the median-priced U.S. house.
The premise for "tapering,'' or beginning the long process of unwinding several years of central bank policy that opened new frontiers in cheaper and easier credit, has been that a strengthening recovery doesn't need so much stimulus any more. Trouble is, the recovery — especially in housing — began to crack almost as soon as Fed chairman Ben Bernanke began hinting about tightening in May.
FED: Central bank delays taper, surprising markets
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Housing is, as it has been since 2007, the linchpin on which this economic cycle now turns.
The gap between the economy we have, with 7.3% unemployment, and the sub-6% unemployment rate we want can be explained almost entirely by the continued sluggishness of housing construction. Housing starts this year have averaged an annual pace of 906,000 new homes and apartments. At the same point in the 1983 and 2002 recoveries, the comparable number was about 1.7 million, big builder Hovnanian Enterprises says.
At more than 4 jobs per new single-family home, that means a normal recovery in housing — not a 2005-like bubble — would add 3 million jobs, including both construction and spinoffs in housing-related retailers (think Home Depot) and manufacturing, Moody's Analytics says.
Quick arithmetic tells you that 3 million new jobs would take 1.9 percentage points off the unemployment rate. Voila, 5.4%. Even if the population grows before we get there, and some discouraged workers begin to look for work again, we would still be under 6%.

Ty Laffoon