Tomorrow is a Fed day, and everyone is wondering if they’re going to “taper” which means begin to reduce the pace of asset purchases through Quantitative Easing.
One possibility is that they might cut back on purchases. Another possibility is that they’ll punt and begin those cutbacks early in 2014. Another possibility is that at some point they’ll cut back, but do something “dovish” meaning add something to the language to counteract the taper.
Citi currency analyst Steven Englander has his breakdown of the possibilities:
5% — hawkish tapering — cut in buying beginning December or January — no additional dovish language
35% — dovish December tapering — more commitment in FX/FI than equities — Fed starts with small taper and adds meaningful additional language to commit to commit to low policy rates for a long time. (Full disclosure — I have a lot of sympathy to this view.)
25% — No December but concrete January language — the language will be ‘We expect to begin tapering …’
15% — No December, non-committal but language like “If trends continue, we could begin tapering soon …’
20% – We need to see an extended period of improvement in labour markets and demand …
We’ll be covering tomorrow’s full Fed festivities LIVE.