All Eyes on the Fed This Week

The data docket in the U.S. this week will be eclipsed by the Federal Reserve meeting as prospects mount that policy makers will trim stimulus in response to an improving economy. Elsewhere, November price data out of the U.K. will probably show inflation is cooling toward the Bank of England’s target, German companies gained confidence in December and inflation in Brazil picked up through the middle of this month.

Chairman Ben S. Bernanke and his colleagues at the Fed, meeting for the final time this year, will have in hand recent reports that indicated more Americans are finding work and consumer spending is perking up. Odds of a faster start to tapering have indeed climbed. A Dec. 6 survey by Bloomberg showed 34 percent of economists said the Fed will begin reducing $85 billion in monthly bond purchases, consisting of $45 billion in Treasuries and $40 billion in mortgage-backed securities, at the Dec. 17-18 meeting. That compares with a Nov. 8 survey that showed 17 percent forecast a slower pace of purchases.

“Recent data on employment, retail sales and business inventories increase the likelihood that policy makers will announce their intentions to begin tapering asset purchases,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc., said in a note to clients. He said policy makers got “cold feet” in September, partly due to a loss of momentum in the labor market, a “potential stumble” in housing and a “potentially disruptive” government shutdown. “Since September, there has been significant improvement with respect to each of these factors.”


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