The Federal Open Market Committee just announced an additional $US10 billion tapering of the monthly bond purchases it makes under its quantitative easing program.
The reactions are pouring in from Wall Street strategists and economists.
Here’s what they’re saying:
JAN HATZIUS, CHIEF ECONOMIST AT GOLDMAN SACHS: Hatzius says the part of the statement where the FOMC says, “Labour market indicators were mixed but on balance showed further improvement,” is indicative of a “slight downgrade” to the Committee’s assessment of the labour market, given the use of the word “mixed.” On the other hand, the assessment of the overall economic picture was positive. (via Bloomberg)
STEVEN ENGLANDER, GLOBAL HEAD OF G-10 FX STRATEGY AT CITI: “From the viewpoint of domestic U.S. economic conditions, the statement is completely anodyne. From the point of view of EM, the Fed has just said ‘hasta la vista, baby’. The comment on U.S. growth was a not-surprising upgrade in the growth assessment — economic activity ‘picked up’ rather than ‘is expanding at a moderate pace’ — but very little else changed other than the expected $US10 billion additional tapering. There were no dissents and no changes in the forward guidance language. Since the announcement, MXN and AUD are down about 0.4%, so there is modest disappointment in high-beta currencies. The S&P 500 is down about 10 points, taking down U.S. Treasury yields, which initially spiked but have since dropped. On these asset market conditions, look to JPY, CHF and EUR to do well, and commodity currencies and EM to do poorly.”
DREW MATUS, DEPUTY U.S. CHIEF ECONOMIST AT UBS: “The bland statement was likely the result of a confluence of factors: expected healthy growth in the fourth quarter (due out tomorrow), still-falling unemployment, stable core inflation (as measured by the consumer price index and, perhaps most importantly, the transition to a new Fed Chair. While the statement chose to downplay risks to activity, we would continue to stress that Fed transitions usually provoke some risk aversion.”
DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY AT CRT CAPITAL: “There is very little here that we see as new as another let to tapering was expected, and to help justify it there’s a bit of an uptick in the economic view as measured by this change to the statement: ‘activity picked up in recent quarters’ versus ‘activity is expanding at a moderate pace’. A nuance, but a bit firmer. Beyond all this there were really no changes. Note some may have thought (very few if any) that there would be a change in the unemployment rate threshold of 6.5% but that wasn’t changed. Yields are a tad higher, 0.5 basis points in 10s, after this which rather tells you how much of a yawn it was. Note that there were no dissents so the talk(?) about a more hawkish Fed is not really revealed here unless, of course, this is a vote of confidence and respect for Bernanke’s final foray and dissent will rise later for Yellen.”
MILLAN MULRAINE, DEPUTY HEAD OF U.S. RESEARCH AND STRATEGY AT TD SECURITIES: “The apparent absence of any concern about the recent turmoil in EMs and possible feedback to the U.S. economy was reflected in the unchanged growth and labour market assessment. In particular, the Fed continues to see the risks as ‘more nearly balanced’, which is a reaffirmation of the view expressed at the December meeting when tapering was launched. In fact, they reinforced their optimistic outlook for growth, noting that they expect ‘economic activity will pick up at a moderate pace.’ In a glaring departure from the last few years, the policy decision was unanimous among voters — with even Kocherlakota, who argued against tapering last month, voting in favour of a further cut. The bottom line here is simply that the Fed continues to have full confidence in the U.S. economic recovery, and their decision to stick to their tapering agenda suggests that they are looking through the recent weak tone in the data. Given this, we continue to expect the Fed to maintain this tapering pace, with a further $US10 billion cut at each meeting in the coming months, ending the program by Q4 this year.”
IAN SHEPHERDSON, CHIEF ECONOMIST AT PANTHEON MACROECONOMICS: “The statement is a bit more upbeat than in December, suggesting the Fed is (even) more comfortable with its decision to taper. Growth is now said to have ‘picked up in recent quarters’, compared to ‘expanding at a moderate pace’ in December, while consumption and investment ‘advanced more quickly in recent months’, compared to merely ‘advanced’ in December. And fiscal restraint ‘is diminishing’, compared to ‘may be diminishing’. No specific comment on the December payroll data; labour market indicators are said to be ‘mixed but on balance showed further improvement’. We expect a further $US10 billion taper in March, barring an EM meltdown.”
NEIL DUTTA, HEAD OF U.S. ECONOMICS AT RENAISSANCE MACRO RESEARCH: “The FOMC delivered the expected today. They acknowledged the improvement in the economy, cut the monthly bond buying program by $US10 billion (spread equally across Treasuries and MBS) to $US65 billion per month, and made no immediate changes to the rate guidance. The FOMC was unified in this decision. Hawks like Dallas Fed President Fisher and Philadelphia’s Plosser were in agreement with doves like Narayana Kocherlakota of Minneapolis. The most pressing challenge for the FOMC is to beef up their forward guidance language. The Fed could lay out the labour market indicators they are monitoring beyond the unemployment rate or they could adopt an inflation floor, a commitment to keep rates low so long as inflation remains below 1.5 to 2.0%, for example. For now, because inflation remains low and likely to remain so, we think the path of least resistance is to keep the current qualitative forward guidance language in place.”
CHRIS LOW, CHIEF ECONOMIST AT FTN FINANCIAL: “Stocks are falling after the Fed statement, likely because the market unrest gripping traders the past several days seems to have escaped the Fed’s notice. We expect this apparent oversight will be addressed verbally when the post-meeting gag period ends and in writing when the minutes are revealed. Still, in the past three trading days, U.S. equities are down 3%, some emerging market currencies are off double digits and foreign central banks are fighting for their financial lives. The Fact that it doesn’t warrant even a passing mention in the Fed statement shows where all this falls on the Fed’s list of priorities.”
ADRIAN MILLER, DIRECTOR OF FIXED INCOME STRATEGY AT GMP SECURITIES: “With much of the market preoccupied on the emerging market sell off, though not without a fair amount of focus on the Fed’s policy decision, Chairman Bernanke and the FOMC committee delivered as expected and further cut asset purchases by $US10 billion evenly split between USTs and MBS. In fact, the language of the policy statement was largely the same as December’s communique. With the Fed not acknowledging the recent EM turmoil as to not unnecessarily raise the disturbance to too high of a level, the Fed gave a nod to an improving U.S. economy. And with the Fed confirming the weak December NFP report by stating labour market indicators were mixed they were sure to point out ‘on balance showed further improvement.’ That sentence provided the cover for the additional cut. And now, with Yellen at the helm the Fed is poised to assume a $US10 billion cut per meeting process. And any development that risks changing the Fed’s pace of tapering will need to satisfy a high hurdle. 2014 will surely be a challenging year for the Fed as it tries to extricate itself from QE while trying to minimize domestic and EM disruptions.”
More to come as we get it…
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