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5 Jun 2013
Flash: QE to taper in September? – Deutsche Bank
FXstreet.com (Barcelona) - According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “We believe that policymakers are still on track to taper QE at the September meeting – we expect the first cut to total $25B, split between mortgages ($10B) and treasuries ($15B) resulting in new monthly purchases of $60B.”
This would then allow the Fed to taper again in two successive $30B increments at the October 28-29 and December 16-17 FOMC meetings. When asset purchases are completed, they expect the Fed to pursue an active policy of reinvestment for at least three months. Should the economy continue to mend, this will be followed by roll-off of maturing securities from the Fed's balance sheet. It would be at least another three months before the Fed would raise interest rates.
Key to the above view is that assumption that the unemployment rate continues to trend lower and approach the Fed's 6.5% threshold sooner than policymakers currently envision. Our own view is that competitive QE elsewhere and even market sensitivities to a US reduction might force the FED to carry on QE for longer than most currently think. Nevertheless this will be a crucial area for debate for the next few months.
This would then allow the Fed to taper again in two successive $30B increments at the October 28-29 and December 16-17 FOMC meetings. When asset purchases are completed, they expect the Fed to pursue an active policy of reinvestment for at least three months. Should the economy continue to mend, this will be followed by roll-off of maturing securities from the Fed's balance sheet. It would be at least another three months before the Fed would raise interest rates.
Key to the above view is that assumption that the unemployment rate continues to trend lower and approach the Fed's 6.5% threshold sooner than policymakers currently envision. Our own view is that competitive QE elsewhere and even market sensitivities to a US reduction might force the FED to carry on QE for longer than most currently think. Nevertheless this will be a crucial area for debate for the next few months.