Fed's bond-buying plan in QE3 may end sooner
Source: Agencies |
May 20, 2013, Monday
|
Print Edition
Print Edition
THE beginning of the end of the Federal Reserve's massive bond-buying program might come sooner than many investors think if recent gains in the US labor market do not prove fleeting.
Much will depend on how economic data, which has given mixed signals for growth prospects, develops over the next few months. Reports on job growth in particular will go a long way in helping Fed officials determine whether the time is right to trim the pace of their US$85 billion in monthly purchases.
The marked improvement in the labor market since the US central bank began its third round of quantitative easing, or QE3, has added an edge to calls by some policy hawks to dial down the stimulus. The roughly 50 percent jump in monthly job creation since the program began has even won renewed support from centrists, raising at least some chance the Fed could ratchet back its buying as early as next month.
"We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer," San Francisco Federal Reserve Bank President John Williams said, adding that his view is that summer begins in mid-June.
The central bank next meets to debate policy on June 18-19.
The Fed's balance sheet has swelled to some US$3.3 trillion and officials have been debating whether this risks igniting future inflation or blowing up asset bubbles, even as they seek to help a tepid economic recovery.
Chairman Ben Bernanke and other top Fed officials have increasingly stressed that any change to the pace of QE3 would not signal a withdrawal of monetary stimulus and that they could continue the program for quite some time at a lower level or even increase it again if needed.
Most economists do not expect a tapering of bond buying until later in the year, in part because of weak readings on inflation.
But Williams' remarks prompted a decline in stocks and a rebound in the dollar, with the greenback increasing further on Friday as investors prepared for a lessening of stimulus measures.
Much will depend on how economic data, which has given mixed signals for growth prospects, develops over the next few months. Reports on job growth in particular will go a long way in helping Fed officials determine whether the time is right to trim the pace of their US$85 billion in monthly purchases.
The marked improvement in the labor market since the US central bank began its third round of quantitative easing, or QE3, has added an edge to calls by some policy hawks to dial down the stimulus. The roughly 50 percent jump in monthly job creation since the program began has even won renewed support from centrists, raising at least some chance the Fed could ratchet back its buying as early as next month.
"We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer," San Francisco Federal Reserve Bank President John Williams said, adding that his view is that summer begins in mid-June.
The central bank next meets to debate policy on June 18-19.
The Fed's balance sheet has swelled to some US$3.3 trillion and officials have been debating whether this risks igniting future inflation or blowing up asset bubbles, even as they seek to help a tepid economic recovery.
Chairman Ben Bernanke and other top Fed officials have increasingly stressed that any change to the pace of QE3 would not signal a withdrawal of monetary stimulus and that they could continue the program for quite some time at a lower level or even increase it again if needed.
Most economists do not expect a tapering of bond buying until later in the year, in part because of weak readings on inflation.
But Williams' remarks prompted a decline in stocks and a rebound in the dollar, with the greenback increasing further on Friday as investors prepared for a lessening of stimulus measures.
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