The Federal Reserve will trim its monthly bond purchases to $65 billion in September and end buying in June 2014, according to the plurality of estimates by economists in a Bloomberg survey.
The survey of 54 economists was conducted June 19-20, following Chairman Ben S. Bernanke’s press conference, in which he mapped out a timetable for ending one of the most aggressive easing strategies in Fed history. His remarks prompted economists to predict a faster reduction in bond purchases from $85 billion per month: 44 percent of economists see a tapering in September compared with 27 percent in a June 4-5 survey.
“It’s a shot heard round the world for global investors -- a reminder that QE is in fact going to end one day,” said Chris Rupkey, the chief financial economist for Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, referring to a policy known as quantitative easing. “One thing that would help them wind down quicker would be confirmation the unemployment rate is going to come down quicker.” The jobless rate in May was 7.6 percent.
Bernanke, speaking on June 19 after a two-day meeting by the Federal Open Market Committee, said the Fed may begin dialing down its unprecedented bond buying this year and end it in mid-2014 if the economy achieves the Fed’s objectives. His remarks sparked a sell-off in global financial markets, with stocks falling and bond yields rising for two days.
Federal Reserve Bank of St. Louis President James Bullard, who dissented at the Fed meeting, said that officials “inappropriately timed” their decision to lay out a plan to reduce the pace of quantitative easing.
“A more prudent approach would be to wait for tangible signs that the economy was strengthening and that inflation was on a path to return toward target before making such an announcement,” Bullard said in a news release today.
Stocks and commodities rebounded today, paring their weekly declines. Standard & Poor’s 500 Index futures rose 0.8 percent to 1,596.5 at 12:07 p.m. in London. Gold for immediate delivery climbed 0.7 percent after yesterday sliding below $1,300 an ounce to the lowest since September 2010. The metal has dropped 7 percent this week, the most since September 2011, while the S&P 500 is down 2.4 percent since June 14.
U.S. Treasuries rose today, with 10-year yields falling two basis points to 2.4 percent. Two-year note yields were little changed at 0.32 percent. The dollar is poised for a weekly advance against all of its major counterparts.