Fed Now Seen Starting to Taper Bond Buying in December

 

Most economists surveyed now say the Federal Reserve will begin tapering asset purchases in December after Chairman Ben S. Bernanke reset the central bank’s timeline by maintaining the pace of bond-buying earlier this week.
Twenty-four of 41 economists surveyed Sept. 18-19 said the Fed will now wait until December before taking the first step in slowing its $85 billion in monthly bond purchases, according to a Bloomberg survey. The median estimate in an Aug. 9-13 poll projected the Fed would begin paring at this week’s meeting.

Instead, the Federal Open Market Committee opted to press on with asset purchases, saying it was dissatisfied with progress in the labor market. Policy makers’ surprising extension of the program sent stocks to record highs and triggered the biggest rally in Treasuries since 2011 as investors repositioned for a more accommodative central bank.
“They cannot continue going full speed forever because the larger the balance sheet, the more FOMC members will become uncomfortable,” said Roberto Perli, a partner at Cornerstone Macro LP in Washington and a former Fed economist. Perli said the Fed’s meeting in December is the earliest it could revisit the decision to press on.
Federal Reserve Bank of St. Louis President James Bullard in an interview today on Bloomberg Television held out the chance that policy makers could decide as early as next month to begin slowing the pace of bond purchases.

‘Close Decision’

“This was a close decision here in September, so it’s possible you could get some data that change the complexion of the outlook and could make the committee be comfortable with a small taper in October,” Bullard said. “It’s possible, but I’m not saying it will happen. You have other meetings after that.”
Federal Reserve Bank of Kansas City President Esther George, who has consistently dissented against additional stimulus, today said financial markets were prepared for a reduction in bond purchases, so the central bank should have followed through.
“Clearly the actions at this meeting, and the expectations that had been set relative to how markets were thinking about this, created confusion, created a disconnect,” George said in a New York speech to the Shadow Open Market Committee, a group of economists that critiques Fed policy.

Shares Fall

Stocks fell, sending benchmark indexes to their biggest decline since August, as concerns grew about the timing of Fed stimulus cuts and political wrangling over federal spending. The Standard & Poor’s 500 Index dropped 0.7 percent, the most since Aug. 27, to 1,709.92 at the close in New York.
While Fed policy makers held the line on monetary policy this week, India’s central bank Governor Raghuram Rajan surprised analysts by raising the benchmark interest rate in his first policy review, seeking to rein in inflation that’s dimmed economic prospects.
In Britain, the economic revival helped reduce the country’s budget deficit last month as tax income climbed and the government cut spending. Net borrowing excluding temporary support for banks was 13.2 billion pounds ($21.2 billion) compared with 14.4 billion pounds a year earlier, the Office for National Statistics said today.
While the central bank meets on Oct. 29-30, policy makers will have received just one new monthly jobs report from the Labor Department.

Payroll Data

The latest payroll figures showed employers added 169,000 jobs in August, less than the median forecast of economists and following gains in the prior two months that were revised down. The Fed forecasts the economy will strengthen later this year, and in 2014 projects growth of 2.9 percent to 3.1 percent, according to estimates released at their meeting. Gross domestic product has advanced an average 1.8 percent in the first half of the year.
“We’ll be looking to see if the data confirm that basic outlook,” Bernanke said in his press conference following the conclusion of the Fed’s meeting. “If it does, we’ll take a first step at some point, possibly later this year.”
The Fed’s third round of quantitative easing began in September 2012 and central bankers pledged to continue purchases until achieving “substantial improvement” in the labor market. So far they’ve purchased $386.8 billion of Treasuries and $463 billion of mortgage bonds, for a total of $849.8 billion.

March Meeting

Three of the 41 economists surveyed by Bloomberg project the Fed will wait until March before deciding to shrink the program. Four project central bankers will slow the pace of purchases in October, while five said they will wait until the meeting in January.
“Had we been looking at job growth of 200,000 or more and growth closer to 2.5 percent or 3 percent” the central bank may have tapered this week, said Millan Mulraine, director of U.S. rates research at TD Securities USA Inc. in New York. Unless data show employment and the economy improving, the central bank may not begin reducing purchases until March, he said.
“I don’t think we’re going to be in the environment in December where we have a substantially improved economic performance or economic outlook,” Mulraine said.
The delay in winding down the program will swell its total size to encompass $763 billion in mortgages and $705 billion in Treasuries for a total of $1.47 trillion, according to the median of economist estimates. In a Sept. 6 survey, before Bernanke’s press conference, economists projected the program would conclude with $1.29 trillion in purchases.

Business Investment

One reason the expansion hasn’t gained momentum is that business investment has cooled. Spending on new equipment climbed 2.3 percent over the past four quarters, the smallest year-over-year advance since the end of 2009 when the world’s largest economy was beginning to emerge from the recession.
Kurt Kuehn, chief financial officer for Atlanta-based United Parcel Service Inc. (UPS), said limited demand helps explain why companies are slow to boost capital spending.
“We are reinvesting where we need it, but with muted growth right now there is not a huge need for expansion,” Kuehn said on Bloomberg Television’s “Bloomberg Surveillance” with Tom Keene and Sara Eisen.
Bullard, a voter on policy this year who has backed record stimulus, said on the same program that the decision at the Fed’s Sept. 17-18 meeting not to slow bond purchases was a close call.

‘Borderline Decision’

“That was a borderline decision” after “weaker data came in. The committee came down on the side of, ‘Let’s wait.’”
Markets shouldn’t have been surprised by the decision because FOMC members have repeatedly said the decision to taper would be “data dependent,” Bullard said.
“I’m a little dismayed at those in markets that are saying they’re surprised by this,” Bullard said. The Fed said that, “if the economy was going to improve in the second half of the year, and if we saw that improvement, we would taper.”
Economists have also pushed back their estimates for when the Fed’s bond-buying program will conclude, with the median estimate calling for it ending at the Fed’s September 2014 meeting. In the Sept. 6 survey, they saw the program ending in June 2014. Bernanke himself had said in remarks at his June press conference the program would likely end around mid-2014.

One Month

“It’s almost like Bernanke got up this week and said don’t believe everything you’ve heard,” said Chris Low, chief economist at FTN Financial Inc. in New York. “Can’t imagine there’s anything that’s going to come in one month that changes their minds.”
Even as he postponed reducing bond purchases, Bernanke emphasized that the Fed would continue to provide stimulus through its near-zero interest-rate policy.
“The first increases in short-term rates might not occur until the unemployment rate is considerably below 6.5 percent,” he told reporters.
The Fed has provided guidance on its interest-rate policy by saying it would keep its target rate near zero at least as long as unemployment is above 6.5 percent, so long as inflation does not breach 2.5 percent.
“The view of the academic research suggests that forward guidance is probably the most effective in supporting the economy,” said Scott Brown, chief economist for Raymond James & Associates Inc. in St. Petersburg, Florida. “The asset purchases are positive but less effective” so “by December, tapering seems a bit more likely.”

Fed’s Yellen Postpones New York Speech as Her Candidacy Gains

Federal Reserve Vice Chairman Janet Yellen postponed a speech next month to the Economic Club of New York, the club said today, as her prospects of becoming the next Fed chairman gained.
Yellen’s planned appearance Oct. 1 “will be rescheduled,” the club said in an e-mailed statement. “We will return any advance payments.”
The likelihood of Yellen, 67, replacing Ben S. Bernanke as Fed chief has increased as White House officials began gauging lawmakers’ support and she won the backing of a top Senate Democrat this week.
Senator Charles Schumer of New York, the chamber’s No. 3 Democrat and a senior member of the Banking Committee, on Sept. 18 called Yellen an “excellent choice” to succeed Bernanke when his term expires on Jan. 31.
President Barack Obama’s aides, meanwhile, have begun making calls to U.S. Senate offices to discuss the process of selecting the next central bank chief, mentioning Yellen by name, according to three Senate Democratic staff members.
The calls to senators’ offices follow the decision by former Treasury Secretary Lawrence Summers to withdraw his name from consideration, announced Sept. 15.
Michelle Smith, a spokeswoman for the Fed in Washington, didn’t immediately return a phone call seeking comment.

QE退場再引憂慮 美股一片綠油油

〔本報訊〕由於美國勞工市場以及經濟指數仍未見起色，聯準會（Fed）日前宣布將維持量化寬鬆（QE）貨幣政策規模，美股於19日大漲收紅；不過股市刺激 過後，取而代之的則是投資人的焦慮，聯準會停止購買公債的時機點再度成為未知數，導致美股四大指數20日一片慘綠，其中道瓊指數更是狂瀉185點，最後收 在15451.09點。

　道瓊工業指數下跌185.46點，收在15451.09點，跌幅1.19％；那斯達克指數下跌14.66點，來到3774.73點，跌幅0.39％；標 準普爾500指數下跌12.43點，收在1709.91點，跌幅0.72％；費城半導體指數下跌2.941點，收在493.145點，跌幅0.59％。  

亞太股市周五齊跌 印度加息股市領跌

亞太股市周五表現

新浪財經訊 9月21日消息，據東方日報報道，印度央行行長拉贊昨主持上任後首次議息會議，結果出乎眾人預料把回購利率調高0.25厘至7.5厘，是兩年來首次加息， 孟買綜合指數更一度狠挫2.8%，在亞洲新興股市中跌得最傷，央行放寬提振匯價措施，拖累印度盧比應聲下挫最多1.3%，低見62.6025兌一美元。
印尼菲泰股市齊倒跌
除印度外，印尼、菲律賓及泰國股市周四凌厲的升幅亦無以為繼，昨在獲利回吐壓力下，分別倒跌最多2%、1.3%及1%。
拉贊甘願賭上印度的經濟增長，決定加息，是希望向外界宣示印度央行致力打擊通脹的決心，繼而撐起盧比匯價，為經濟重拾增長動力奠下基礎。
他昨向傳媒稱，當局將盡力將批發物價指數(WPI)之升幅控制在5%以下，又指聯儲局今次暫緩退市，再添市場不穩定性，當局“不管聯儲局幹甚麼”都須設法穩定經濟，防範美國退市觸發的衝擊。
事實上，印度通脹近期日益嚴重，八月份的WPI意外按月升至6.1%的半年新高，元凶之一是當地人每日下廚不可或缺的洋蔥，其WPI繼去年飆升245%後，年初以來仍高企。市場人士相信，拉贊欲以行動說明，在通脹回落及盧比回穩前，印度央行不會放寬幣策。
印度放寬銀行流動性
但為減輕銀行業的融資成本及鑒於盧比回升，印度央行昨亦放寬該行早前為穩定匯價，收緊銀行流動性的“辣招”，把邊際貸款工具及銀行利率各削0.75厘至9.5厘，今日起生效。拉贊強調，措施不能與加息混為一談。