Tags: Fed | taper | bond | economic

Survey: Fed to Speed Up Taper Pace

Wednesday, 22 Jan 2014 07:09 AM

By Michael Kling

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The Federal Reserve will accelerate the pace of its taper, economists surveyed by The Wall Street Journal predict.

The economists believe the Fed's tapering of its monthly bond purchases will be "modestly stronger" than they predicted in December, The Journal reports.

The central bank began shrinking its bond purchases last month, deciding to reduce the amount from $85 billion to $75 billion a month.

Editor’s Note:
38 Trades That Could Turn $1,000 Into $49,000

The survey indicates that economists are more optimistic about the economy, despite the poor jobs report for December.

The economists estimate economic growth in the fourth quarter of 2013 at 2.8 percent, up from their 1.7 percent estimate last month, and predict unemployment will be at 6.3 percent at the end of 2014, down from 6.5 percent.

Polls of economists show they believe the Fed will reduce its bond purchases by about $10 billion every meeting, according to Reuters. Investors could expect a faster taper pace due to favorable economic figures.

"With increased confidence about the sustainability in economic recovery and concerns about the declining benefit of the QE3 [quantitative easing] program, the risk is for a faster wind-down in purchases than is currently being priced into the market," TD Securities analyst Millan Mulraine tells Reuters.

Minutes of the Federal Open Market Committee meeting on Dec. 17 and 18 show that Fed officials wanted to move cautiously when reducing the purchases, fearing they might frighten financial markets.

Although most agreed to start tapering and that the recovery is sustainable, some "also expressed concern about the potential for an unintended tightening of financial conditions if a reduction in the pace of asset purchases was misinterpreted as signaling that the committee was likely to withdraw policy accommodation more quickly than anticipated," according to the minutes.

Committee members also wanted to stress that the tapering pace is not on a preset course, but rather it depends on the labor market, inflation and the efficacy and costs of the bond-buying program, according to the minutes.

"There was a lot of consensus building going on," Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, tells Reuters. "This is pointing out there will be a continuity of policy and the Fed is going to err on the side of caution when it comes to trimming asset purchases and to raising rates when it eventually gets to that point."

Editor’s Note: 38 Trades That Could Turn $1,000 Into $49,000

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