Tags: Goldman | Citi | Fed | taper

Goldman Sachs Among Crowd Forecasting Fed Taper in March

Thursday, 24 Oct 2013 07:49 AM

By Michelle Smith

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Goldman Sachs is among the crowd that believes the sluggish employment data will cause the Federal Reserve to delay tapering until March 2014.

A weaker-than-expected employment report for September revealed 148,000 jobs were created last month. That was well below expectations of 180,000 and a significant drop from the 193,000 jobs reported for August.

Goldman Sachs economists believe the report is almost certain to be a game changer.

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"Although December remains a possibility [for the Fed to taper], this [employment] report makes it more likely that the Fed pushes the first reduction in the pace of its asset purchases into 2014," the economists wrote in a market note, CNBC reported.

Goldman's March forecast is based on "the assumption that the next set of fiscal deadlines proves less disruptive than the most recent set," and the firm notes there is considerable uncertainty.

Citigroup is another firm citing March as the most likely occasion for the Fed to pare back its asset purchases.

"For Fed officials who saw recovery's glass as half empty in September, [Tuesday's] data, along with the questions raised by the fiscal standoff, will likely reinforce the desire to maintain peak accommodation just a little longer than we anticipated," Citi economists wrote in a note to clients.

After the September jobs report, Barclays backed away from its projection for tapering in December, MarketWatch reported.

"In light of the moderate tone of the September data," the Fed is likely to wait until March to taper, Dean Maki, the firm's chief U.S. economist wrote, in a market note.

The Fed has repeatedly stated that its decisions are data dependent, but the 16-day government shutdown interrupted the normal flow of economic data.

Laura Rosner, an economist at BNP Paribas and a former researcher at the New York Fed, told Bloomberg she expects that interruption to play a role in prolonging the current pace of monetary policy until March.

"It's going to be harder to extract the signal from the data, and the Fed's policies are tied to the data. They're waiting for more confirmation the economy is moving in the direction of their outlook, and if we don't have data or it's inconclusive, then the Fed isn't going to feel confident enough in the outlook," she said.

A Bloomberg survey reveals expectations that the Fed will ease its foot off the monetary pedal in March are growing increasingly prevalent.

According to median forecasts, economists expect asset purchases to be reduced from $85 million per month to $70 million at the Fed's March meeting. They expect purchases to be slashed down to $25 billion per month in July and to end at the October 2014 meeting.

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Related Stories:

Fed's QE Taper Seen Delayed to March as Shutdown Slows Economy

Slower Job Growth Expected to Keep Fed From Tapering Bond Purchases

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