Tags: Fed | taper | QE | term

WSJ: Fed Hates the Word 'Tapering'

Tuesday, 11 Jun 2013 07:47 AM

By Michael Kling

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"Tapering" is the latest buzzword for speculating about when the Federal Reserve will begin shrinking its monthly bond purchases. Everyone it seems is using the word.

But Federal Reserve officials don't like that word and have never used it.

The problem is tapering, which means progressively smaller, implies a fixed plan for gradually reducing bond purchases.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Slow and steady is not what the Fed has in mind, notes The Wall Street Journal. The Fed wants the flexibility to respond to economic data as it tapers — or make that reduces, steps down or diminishes — quantitative easing. It might reduce the purchases, then later increase them if conditions warrant. It might reduce them, and then hold steady for a time.

Fed Chairman Ben Bernanke never used the word in his March press conference or in two hours of congressional testimony, The Journal notes. He said: "in the next few meetings, we could take a step down in our pace of purchases."

And although the word was used a few times in Fed policy meeting minutes, New York Fed President William Dudley has likewise steered clear of the word, The Journal reports, noting that he has talked about reducing "the pace at which we are adding accommodation through asset purchases."

The Fed didn't like the term "quantitative easing" either. It used the phrase "long-term asset purchases," but that didn't stop the quantitative easing term from becoming part of American financial lexicon.

That might also be the case with tapering.

According to the median estimate of economists surveyed by Bloomberg, the Fed will decide cut QE to $65 billion a month in October.

"Even those who are advocating for tapering are thinking that it could be a pretty small first step to see how it goes," Julia Coronado, chief economist for North America at BNP Paribas, tells Bloomberg.

Only two of the 59 economists surveyed predict the Fed will reduce its purchases in June or July.

In fact, 16 of those surveyed expect the Fed to start tapering at the Sept. 17-18 meeting, 14 expect it to start at the Oct. 29-30 meeting and 15 forecast the first tapering at the Dec. 17-18 meeting. Only 12 expect the Fed to start tapering next year or later.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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