29 Oct 2013
Flash: A year of taper talk but no action - Rabobank
FXstreet.com (London) - Research teams at Rabobank said at the September meeting, the FOMC surprised the markets by delaying the start of tapering.
Key Quotes:
“The Committee thought that the rise in longer-term rates in recent months, if sustained, could slow the pace of improvement in the economy and labor market. So they decided (with one dissenter) ‘to await more evidence that progress will be sustained before adjusting the pace of its purchases’”.
“That decision has made it difficult to start tapering anytime soon”.
“On the positive side, the agreement on back pay to federal workers should remedy the loss in consumer demand by government employees who had to cut back on spending”.
“Moreover, the deal to raise the debt ceiling and reopen the government did not solve the budgetary stalemate between Republicans and Democrats".
“On January 15 another continuing resolution (or budget agreement) is needed to avoid a government shutdown”.
“On February 7 the debt ceiling is hit again, although the Treasury is allowed to take extraordinary measures which will extend the borrowing capacity beyond that date, perhaps one or several months. Of course, the third element of the deal was the setup of another bipartisan committee to come up with long-term budget deficit reduction ideas, which should be finished by December 13. Unlike the debt ceiling deal of 2011, there are no consequences of failure like the automatic spending cuts that started in March this year. That makes this attempt to reach a ‘Grand Bargain’ even less credible than two years ago. This also means that we are likely to see a repetition of October’s games of chicken in early 2014”.
“However, the majority of House Republicans actually voted against the deal to raise the debt ceiling and reopen the government. This suggests that we are likely to see a repetition of the games of chicken”.
“Finally, the January 28-29 meeting of the FOMC has no press conference, so there is limited opportunity to explain any tapering decision. This is Bernanke’s last meeting, so he may have an incentive to start tapering before he leaves”.
“However, the FOMC may prefer to wait until his successor, Janet Yellen (if confirmed by the Senate), takes over. What’s more, the March 18-19 meeting includes an update of the economic projections of the FOMC participants and a press conference that will give the new Fed head a stage to explain the decision to start tapering”.
“All in all, we think that the FOMC will wait until at least the March meeting before it starts tapering”.
Key Quotes:
“The Committee thought that the rise in longer-term rates in recent months, if sustained, could slow the pace of improvement in the economy and labor market. So they decided (with one dissenter) ‘to await more evidence that progress will be sustained before adjusting the pace of its purchases’”.
“That decision has made it difficult to start tapering anytime soon”.
“On the positive side, the agreement on back pay to federal workers should remedy the loss in consumer demand by government employees who had to cut back on spending”.
“Moreover, the deal to raise the debt ceiling and reopen the government did not solve the budgetary stalemate between Republicans and Democrats".
“On January 15 another continuing resolution (or budget agreement) is needed to avoid a government shutdown”.
“On February 7 the debt ceiling is hit again, although the Treasury is allowed to take extraordinary measures which will extend the borrowing capacity beyond that date, perhaps one or several months. Of course, the third element of the deal was the setup of another bipartisan committee to come up with long-term budget deficit reduction ideas, which should be finished by December 13. Unlike the debt ceiling deal of 2011, there are no consequences of failure like the automatic spending cuts that started in March this year. That makes this attempt to reach a ‘Grand Bargain’ even less credible than two years ago. This also means that we are likely to see a repetition of October’s games of chicken in early 2014”.
“However, the majority of House Republicans actually voted against the deal to raise the debt ceiling and reopen the government. This suggests that we are likely to see a repetition of the games of chicken”.
“Finally, the January 28-29 meeting of the FOMC has no press conference, so there is limited opportunity to explain any tapering decision. This is Bernanke’s last meeting, so he may have an incentive to start tapering before he leaves”.
“However, the FOMC may prefer to wait until his successor, Janet Yellen (if confirmed by the Senate), takes over. What’s more, the March 18-19 meeting includes an update of the economic projections of the FOMC participants and a press conference that will give the new Fed head a stage to explain the decision to start tapering”.
“All in all, we think that the FOMC will wait until at least the March meeting before it starts tapering”.