“Tapering”: Expectations Vary From December 2013 to June 2014

While the focus started to shift to corporate earnings and the consequences of the government shutdown, it also turned to the speculation that the Fed will take more time to reduce its asset purchase program.

 

In the FT, Robin Harding and Michael Mackenzie suggest that “tapering” in October seems to be excluded because of the lack of data. However, Fed officials could still favor a small taper in December if November data show a real improvement from September.

 

The US government shutdown sabotaged a crucial month of data and dealt a blow to the world’s largest economy, but the Federal Reserve could still begin reducing its asset purchases as early as December.
 
Analysts have slashed their growth forecasts for the fourth quarter to 2 per cent or below, with many expecting a hit of about 0.5 percentage points from the prolonged shutdown. But many said the economy would bounce back quickly with federal employees back at work.

 

In the WSJ, Jon Hilsenrath reports that the Fed is unlikely to taper in October but could act in December or January depending on the data strenght.

 

The Fed is unlikely to start curtailing its bond buying at its next policy meeting Oct. 29-30. Fed officials have said the decision depends on how the economic data evolve, but the data won’t be very illuminating into November because the partial government shutdown closed the agencies that collect them.
 
Fed officials could act at one of the following two meetings—Dec. 17-18 or Jan. 28-29. Their decision will turn on the strength of an economy that would still be a bit harder to read and possibly stung by recent uncertainty.

 

Finally, BlackRock Inc. Chief Executive Laurence Fink said Wednesday in an interview on CNBC that the debt crisis is likely to delay the beginning of the Federal Reserve’s exit from its bond buying program at least until March and possibly as late as June.