Another month of strong U.S. hiring and an unexpected drop in the
jobless rate reported on Friday prompted several economists to bring
forward their expectations for when the Fed will begin paring back
its $85 billion of monthly bond buying.
Nearly half, 29 of 63 economists, think the taper will happen in
either December or January, before Janet Yellen is expected to take
over from Ben Bernanke as chair of the Fed. Nine say it will happen
at the U.S. central bank's Dec 17-18 meeting; 19 say in January, and
one said either December or January.
In a poll taken just over two weeks ago, 16 of 62 economists were
calling for a taper in January, and just three said December, with
the rest saying March or later.
But the majority of economists polled, 33, still expect the Fed to
start trimming its bond buying in March.
Out of 41 common contributors in both polls, 10 have now brought
expectations forward. Six have pushed them ahead, while more than
half, 25, have left their forecast unchanged.
World financial markets are on tenterhooks over when the Fed will
taper. A decision to not cut back on bond buying in September lit a
fire under many stock markets around the globe, and some have
rallied to record highs.
"The recent employment data do increase the likelihood that the Fed
could taper its asset purchases in December, but we believe the
committee will continue to view declines in the unemployment rate as
overstating the amount of improvement in labor markets," wrote
economists at Barclays Capital.
And while most agree the job market is finally on the right track,
there are plenty who think that inflation is not.
"The best argument for tapering is that it has to start sometime,
but the low inflation trend is likely to lead policymakers to delay
the initial tapering until March," said Scott Brown, chief economist
with Raymond James in St. Petersburg, Fla.
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The Fed has been buying long-term Treasuries and mortgage-backed
securities over the past year in an attempt to keep borrowing costs
low to put the economy on a path of sustainable growth and boost the
Data on Friday showed firms hired more workers than expected in
November and the jobless rate fell to a 5-year low of 7.0 percent.
A firm majority expect the Fed's current third round of asset
purchases, called QE3, to end in the second half of 2014.
Consensus expectations for the size of the initial tapering were
unchanged from the November 20 poll at $10 billion a month.
As in many of the past Reuters polls, a majority of respondents said
the cutback would be evenly split between Treasuries and
mortgage-backed securities. The rest thought the Fed would favor a
larger cut in purchases of Treasuries.
(Reuters poll of primary dealers from Friday: <FED/R>)
(Reporting by Yati Himatsingka; polling
and analysis by Ashrith Doddi and Diptarka Roy; editing by Ross
Finley and Chizu Nomiyama)
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