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17 Jun 2013
Flash: QE tapering still projected to be reality this year – Deutsche Bank
FXstreet.com (New York) - It's worth being aware of what we've heard from the Fed over the last month and what the market has reacted to.
In the recent JEC testimony (May 22nd) Bernanke continued to emphasize ongoing labor market weakness. However in the subsequent Q&A he said tapering "could" happen before Labor Day after responding to a question. The market pounced on this comment even if that maybe wasn't Bernanke's intention. However this reaction was in some respects supported by the FOMC minutes from the May 1 meeting, (also realized on May 22nd).
They were surprisingly hawkish and showed that a "number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by the time showed evidence of sufficiently stronger and sustained growth". So there is definitely some debate within the Fed but the data 6 weeks on from this meeting is still inconclusive. According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “We suspect that this week Bernanke will continue to say tapering will happen at some point, could happen this year but will be data dependent and that we are still a long way off from removing the very easy policy stance the Fed has in place. We still think that the Fed will struggle to taper very much and very early but the debate is now going to be around for a while.”
In the recent JEC testimony (May 22nd) Bernanke continued to emphasize ongoing labor market weakness. However in the subsequent Q&A he said tapering "could" happen before Labor Day after responding to a question. The market pounced on this comment even if that maybe wasn't Bernanke's intention. However this reaction was in some respects supported by the FOMC minutes from the May 1 meeting, (also realized on May 22nd).
They were surprisingly hawkish and showed that a "number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by the time showed evidence of sufficiently stronger and sustained growth". So there is definitely some debate within the Fed but the data 6 weeks on from this meeting is still inconclusive. According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “We suspect that this week Bernanke will continue to say tapering will happen at some point, could happen this year but will be data dependent and that we are still a long way off from removing the very easy policy stance the Fed has in place. We still think that the Fed will struggle to taper very much and very early but the debate is now going to be around for a while.”