Back
19 Dec 2013
Four takeaways from Dectaper - Hilsenrath
FXstreet.com (Bali) - The influential Fed-watcher Jon Hilsenrath drew four main conclusions after the taper decision, which include the reduction of bond purchases by $10 bn to $75 bn/month, inflation being the caveat, Fed still anticipating slow rise in short term rates, and finally, the Fed forecast broadly consistent with taper guidance, as written by Jon.
From Hilsenrath at the WSJ
"The Fed said the move was made “in light of cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions.” More reductions are expected “in measured steps” at future meetings. But it depends on the economy living up to the Fed’s expectations and it is not on a preset course."
"Fed officials have become a little more concerned about the outlook for inflation, which has been running below the Fed’s 2% objective for months. “The [Fed] recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.”
"In other words, if inflation keeps undershooting its target, the Fed might have to alter the policy course it set out today. How would officials react to persistently low inflation readings? Stay tuned for Fed Chairman Ben Bernanke’s press conference."
"The vast majority of Fed officials doesn’t expect the central bank to begin raising short-term interest rates until 2015 and three think the Fed won’t get started until 2016. The majority thinks that rate increases in 2015 will be modest and that the benchmark fed funds rate will remain below 1% by the end of that year. The majority also expects the fed funds rate to remain below 2% in 2016. These low rate expectations persist even though the Fed sees the unemployment rate falling below 6.5% next year. That 6.5% rate is the Fed’s threshold for when it will begin talking about rate increases."
"The Fed is largely sticking to the forecast for 2014 that it laid out in September for a modest improvement in growth next year, continued declines in unemployment and a modest pickup in inflation. They see growth in gross domestic product next year between 2.8% and 3.2%, the jobless rate falling to between 6.3% and 6.6% and inflation as measured by the personal consumption expenditure price index between 1.4% and 1.6%. The growth and inflation forecasts are slightly lower than they were in June when Fed chairman Ben Bernanke said that if the economy evolved in a way that was “broadly consistent” with the Fed’s forecasts it would begin reducing its bond buying program before year-end. With today’s action, he and his colleagues appear to think the economy cleared that hurdle."
From Hilsenrath at the WSJ
"The Fed said the move was made “in light of cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions.” More reductions are expected “in measured steps” at future meetings. But it depends on the economy living up to the Fed’s expectations and it is not on a preset course."
"Fed officials have become a little more concerned about the outlook for inflation, which has been running below the Fed’s 2% objective for months. “The [Fed] recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.”
"In other words, if inflation keeps undershooting its target, the Fed might have to alter the policy course it set out today. How would officials react to persistently low inflation readings? Stay tuned for Fed Chairman Ben Bernanke’s press conference."
"The vast majority of Fed officials doesn’t expect the central bank to begin raising short-term interest rates until 2015 and three think the Fed won’t get started until 2016. The majority thinks that rate increases in 2015 will be modest and that the benchmark fed funds rate will remain below 1% by the end of that year. The majority also expects the fed funds rate to remain below 2% in 2016. These low rate expectations persist even though the Fed sees the unemployment rate falling below 6.5% next year. That 6.5% rate is the Fed’s threshold for when it will begin talking about rate increases."
"The Fed is largely sticking to the forecast for 2014 that it laid out in September for a modest improvement in growth next year, continued declines in unemployment and a modest pickup in inflation. They see growth in gross domestic product next year between 2.8% and 3.2%, the jobless rate falling to between 6.3% and 6.6% and inflation as measured by the personal consumption expenditure price index between 1.4% and 1.6%. The growth and inflation forecasts are slightly lower than they were in June when Fed chairman Ben Bernanke said that if the economy evolved in a way that was “broadly consistent” with the Fed’s forecasts it would begin reducing its bond buying program before year-end. With today’s action, he and his colleagues appear to think the economy cleared that hurdle."