30 Oct 2013
Flash: Unchanged and No October Surprise - Rabobank
FXstreet.com (London) - Research teams at Rabobank noted and as expected, the FOMC did not start tapering today. Unlike the previous meeting in September this decision did not come as a surprise.
Key Quotes:
“The economic data for September, many of which have become available with a delay due to the government shutdown, did not show an improvement. In particular, employment growth slowed down to 148K from 193K in August (revised upward from 169K). Ideally, the FOMC would like to see 200K and higher”.
“A significant change in the FOMC statement was the acknowledgement that the recovery in the housing sector slowed somewhat in recent months”.
“What’s more, the remark that ‘the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market’ was dropped. After all, the 10y US treasury yield lost more than 30 bps between the two FOMC meetings”.
“Again, the most hawkish voting member of the FOMC, Esther George (Kansas City Fed), voted against the decision to keep QE3 going at its current pace”.
“The decision not to start tapering in September has made it difficult to start tapering anytime soon. After all, the October government shutdown has undoubtedly slowed down the economy in Q4 and it will be 2014 before we are able to see a number of months of economic data that may convince the FOMC that the recovery is continuing at a solid pace”.
“Finally, the January 28-29 meeting of the FOMC has no press conference, so there is limited opportunity to explain any tapering decision. This is Bernanke’s last meeting, so he may have an incentive to start tapering before he leaves. However, the FOMC may prefer to wait until his successor, Janet Yellen (if confirmed by the Senate), takes over”.
“All in all, we think that the FOMC will wait until at least the March meeting before it starts tapering”.
Key Quotes:
“The economic data for September, many of which have become available with a delay due to the government shutdown, did not show an improvement. In particular, employment growth slowed down to 148K from 193K in August (revised upward from 169K). Ideally, the FOMC would like to see 200K and higher”.
“A significant change in the FOMC statement was the acknowledgement that the recovery in the housing sector slowed somewhat in recent months”.
“What’s more, the remark that ‘the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market’ was dropped. After all, the 10y US treasury yield lost more than 30 bps between the two FOMC meetings”.
“Again, the most hawkish voting member of the FOMC, Esther George (Kansas City Fed), voted against the decision to keep QE3 going at its current pace”.
“The decision not to start tapering in September has made it difficult to start tapering anytime soon. After all, the October government shutdown has undoubtedly slowed down the economy in Q4 and it will be 2014 before we are able to see a number of months of economic data that may convince the FOMC that the recovery is continuing at a solid pace”.
“Finally, the January 28-29 meeting of the FOMC has no press conference, so there is limited opportunity to explain any tapering decision. This is Bernanke’s last meeting, so he may have an incentive to start tapering before he leaves. However, the FOMC may prefer to wait until his successor, Janet Yellen (if confirmed by the Senate), takes over”.
“All in all, we think that the FOMC will wait until at least the March meeting before it starts tapering”.