18 Sep 2013
Flash: Fed holds fire on tapering - TD Securities
FXstreet.com (London) - Millan Mulraine, strategist at TD Securities noted that the Fed holds fire on tapering.
Key Quotes:
“The FOMC kept the pace of monthly asset purchases unchanged at $85B, defying the market expectation for a modest $10B cut to $75B”.
“The decision was driven in large part by the increasing concerns about the impact of “tightening financial market conditions” and “fiscal retrenchment” on real economic activity”.
“In deciding to delay the start of the tapering, the Committee indicated that it will “await more evidence that progress will be sustained before adjusting the pace of its purchases.” This we believe represents a lifting in the threshold for tapering from an absence of weak growth to one of strong growth”.
“With the decision to hold fire on tapering in September, we now see early-2014 as the possible starting point for any reduction in purchases. The onus has now shifted on the data to prove that the current level of monetary policy support is no longer needed, and in our view it will likely be some time before the requisite confirmation is provided in the data”.
“On the forward guidance front, the Fed maintained a very dovish stance on the timing for rate hikes with projections continuing to be clustered in 2015. However, the 2015 median forecasts drifted modest lower to 0.75% from 1.00% at the June meeting. Similarly, the 2016 median stood at 1.75%, which was broadly lower than the consensus expectation of 2.00%”.
This dovish tone was further reinforced by Chairman Bernanke, when he indicated that the Fed is unlikely to begin tightening unless the unemployment rate falls “substantially below 6.5%.” This is effectively an implicit signal of a lowering in the forward guidance”.
“Bottom Line: This is an unambiguously dovish message from the Fed, signaling a more cautious stance towards the withdrawal of monetary stimulus. This is not only underscored by the decision to pass on tapering in September, and the raising of the threshold for tapering, but also on the new, lower UE rate threshold that has been set for the start of tightening. That is, the Fed is now expected to buy more, and stay accommodative for longer than otherwise thought”.
Key Quotes:
“The FOMC kept the pace of monthly asset purchases unchanged at $85B, defying the market expectation for a modest $10B cut to $75B”.
“The decision was driven in large part by the increasing concerns about the impact of “tightening financial market conditions” and “fiscal retrenchment” on real economic activity”.
“In deciding to delay the start of the tapering, the Committee indicated that it will “await more evidence that progress will be sustained before adjusting the pace of its purchases.” This we believe represents a lifting in the threshold for tapering from an absence of weak growth to one of strong growth”.
“With the decision to hold fire on tapering in September, we now see early-2014 as the possible starting point for any reduction in purchases. The onus has now shifted on the data to prove that the current level of monetary policy support is no longer needed, and in our view it will likely be some time before the requisite confirmation is provided in the data”.
“On the forward guidance front, the Fed maintained a very dovish stance on the timing for rate hikes with projections continuing to be clustered in 2015. However, the 2015 median forecasts drifted modest lower to 0.75% from 1.00% at the June meeting. Similarly, the 2016 median stood at 1.75%, which was broadly lower than the consensus expectation of 2.00%”.
This dovish tone was further reinforced by Chairman Bernanke, when he indicated that the Fed is unlikely to begin tightening unless the unemployment rate falls “substantially below 6.5%.” This is effectively an implicit signal of a lowering in the forward guidance”.
“Bottom Line: This is an unambiguously dovish message from the Fed, signaling a more cautious stance towards the withdrawal of monetary stimulus. This is not only underscored by the decision to pass on tapering in September, and the raising of the threshold for tapering, but also on the new, lower UE rate threshold that has been set for the start of tightening. That is, the Fed is now expected to buy more, and stay accommodative for longer than otherwise thought”.