The economy isn't strong enough for the Federal Reserve to begin tapering its quantitative easing yet, says Joel Naroff, president of Naroff Economic Advisors and a member of Newsmax's Financial Braintrust Alliance.
But that likely won't stop the Fed from announcing a start to the tapering after its policy meeting Wednesday, he tells CNBC.
"I'm hoping they actually don't [begin tapering yet]," Naroff said. "I don't think the economy is ready for it necessarily. We could have a soft third quarter. We have the government that's sitting out there, and who knows what's going to happen with sequestration."
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The risks are all on the downside with the economy, he says. "And with inflation really trending downward, I'm not sure why they need to bother. But I suspect because the markets are demanding it, they'll make some move tomorrow."
Naroff thinks Fed Chairman Ben Bernanke's mistake was to say the Fed would likely begin tapering "later" this year instead of "late" this year.
"That magical letter 'r,'" Naroff said. "If he had said late in the year, we'd be looking at December, and nothing else would have been changing. There was no reason."
Given that the Fed probably will reduce its monthly bond purchases by only $10 billion to $15 billion from $85 billion now, what would a wait until December matter? Naroff asks. "But with all the uncertainty, I think he [Bernanke] boxed himself in."
On the job front, many commentators looking at the increase in part-time workers say it represents people who want full-time jobs but can't get them.
That's not entirely true, Naroff says. Many people who are taking part-time jobs are happy with them. "Those are the baby boomers who are cutting back," he said.
"They're not retiring. They're looking for part-time work. Businesses see them as skilled workers, and they're actually getting the jobs that they want."
Meanwhile, the long-term reduction in the labor-force participation rate could mean that full employment no longer means a jobless rate of 5.5 percent, but perhaps 6.5 percent, Naroff says. "That [rate] could start triggering some reasonable wage inflation, because I don't think there's a whole lot of extra slack once you get to that particular point."
Looking at Tuesday's consumer price and earnings data, "the best part . . . is that the minimal rise in earnings isn't totally destroyed by rising prices," Naroff wrote in a commentary sent to Moneynews.
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Consumer prices rose 0.1 percent in August, and real earnings gained the same amount.
"Inflation is hardly anywhere to be found," Naroff concluded.
On the earnings side, "We really need a lot faster gain in household income if consumption is to accelerate," Naroff wrote. "Right now, households are buying new vehicles and homes but little else."
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