Friday’s jobs report came in weak, but the epxectations is that the Fed will still “taper” that is slow down the pace of asset purchases, toward a windup of QE.
Mark Dow has the best explanation for why the Fed will still taper, though it basically boils down to concern over the size of the balance sheet, scepticism over its continued value, and a desire to maintain credibility.
But there has been a slight shift in consensus.
Now more economists are calling for a “dovish taper” or “taper light” meaning that the pace of asset purchases will be reduced, but maybe not as by much as previously expected.
UBS expects a “token taper”
We continue to expect a token taper of $US10 billion to be announced at the September meeting. We would expect a reduction in both Treasury debt and mortgage-backed securities although we cannot rule out a taper focused solely on reduced US Treasury buying. We continue to argue that the FOMC (and the economy) would benefit from less transparency in the announcement process (i.e. announcing the size of the reduction but not the composition). The tapering of asset purchases should last about nine months (through June 2014).
One risk to our forecast that growth will accelerate from late 2013 is the tightening of our Goldman Sachs Financial Conditions Index (GSFCI) over the past few months, as investors have started to worry about a more rapid exit from the Federal Reserve’s accommodative policy stance. Partly for this reason, we expect only a “dovish taper” from the September 17-18 FOMC meeting, with a reinforcement of the forward guidance for the funds rate.”
Others have said the same. Look for the Fed to slow the pace of asset purchases, but in the most minimal way possible.
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