A growing number of economists surveyed by Bloomberg say the Federal Reserve will begin trimming its $85 billion in monthly bond purchases in September.
That was the view of half of those who participated in the July 18-22 survey, up from 44 percent in last month’s poll. Even as expectations of a September taper rose, 10-year Treasury yields continued to fall last week from an almost two-year high after Fed Chairman Ben S. Bernanke said reducing bond-buying wouldn’t constitute policy-tightening.
“The markets have adjusted to the new information that the Fed is likely to reduce purchases over the near term, and they’ve come to terms with it,” said Russell Price, senior economist at Ameriprise Financial Inc. (AMP) in Detroit. “Investors believe it won’t be a strong negative for the markets or the economy.”
None of the 54 economists surveyed expects the Federal Open Market Committee to begin paring its purchases at its meeting scheduled for July 30-31. In its first trim, the FOMC will probably cut monthly bond buying to $65 billion. They see purchases divided between $35 billion in Treasuries and $30 billion in mortgage-backed securities, according to the median estimate of economists.
The central bank will probably halt the asset purchases in the second quarter of next year, according to half of the economists. Twenty-four percent forecast the FOMC will end so-called quantitative easing in the third quarter of 2014.
The Fed will buy a total $1.32 trillion in bonds at the completion of its third round of bond buying, according to the median estimate. The FOMC began with $40 billion in monthly mortgage bond purchases in September and added $45 billion in monthly Treasury purchases in December.
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