{"id":1291,"date":"2013-06-21T15:00:00","date_gmt":"2013-06-21T15:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2013\/06\/21\/viewpoint-the-fed-has-advised-the-markets\/"},"modified":"2013-06-21T15:00:00","modified_gmt":"2013-06-21T15:00:00","slug":"viewpoint-the-fed-has-advised-the-markets","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-the-fed-has-advised-the-markets\/","title":{"rendered":"Viewpoint: The Fed has advised the markets"},"content":{"rendered":"
The Fed has advised the markets that in the coming months QE3 will probably be reduced, to be totally unwound by mid-2014. The policy change will depend on confirmation of the present economic outlook and is reversible, to the point that the Fed has opted to signal the move during the press conference rather than include it in the statement. However, the impact on expectations was strong in any case, as now a policy rate hike, while still a distant prospect, is no longer beyond the forecasting scenario.<\/span><\/span>…….<\/div>\n

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The FOMC meeting of 18-19 June proved to be more important than expected.<\/strong> This was certainly not due to the contents of the official statement: the target rate for fed funds was left unchanged at 0-0.25%, the pace of purchases confirmed at USD 85 billion a month, and no hint was made at any decisions to revise this pace in the future. However, the fact that downside risks to the economic outlook have eased was acknowledged, as was the further improvement of labour market conditions. Also, some of the central bank\u2019s forecasts were revised upwards. In particular, estimated growth in 2014 was raised by one tenth to 3.0-3.5%, and unemployment at the end of 2014 is now expected 2-tenths lower at a 6.5-6.8%. <\/span><\/p>\n

The all-important developments, however, were preannounced by Bernanke orally, in a less binding form, during the Chairman\u2019s press conference. Bernanke said that it could be appropriate to reduce the size of quantitative stimulus in the second half of this year, with the aim of gradually unwinding purchases by the end of 1H 2014. The Fed Chairman stressed that the exit plan is dependent on the broad alignment of the trend of the economy with the Fed\u2019s current forecasts, and that the unwinding of purchases will probably be associated with a drop in the unemployment rate to below 7%. In other words, the move will in any case be reversible, and this should be taken as a preannouncement, not as an official decision.<\/span><\/p>\n

As regards the timing of the abandonment of the zero-rate policy, the necessary conditions remain unchanged.<\/strong> The document containing the forecasts of the FOMC members shows that the wide majority of Committee participants believes the interest rate hike cycle should begin in 2015, although views on the necessary size of the hike differ significantly (three expect to need a policy rate up to 3% by the end of 2015, while one expects no rise at all in interest rates).<\/span><\/p>\n

How should Bernanke\u2019s announcement be read?<\/strong> The market\u2019s reaction reveals that many were surprised by the timing and contents of the announcement. Compared to the considerations we made a week ago, three fundamental points are confirmed: (i) the process is likely to start by the end of the year, (ii) it will be gradual, (iii) and there is no intention to reduce the size of the balance sheet, which the Fed still considers as the real measure of stimulus. The choice not to include the announcement in the official statement, peculiar in some ways, stresses that the timing and modalities of the move remain flexible, and dependent on data, another characteristic of the reversal we considered as likely. On the other hand, the decision to indicate an exact timeline for the unwinding of the purchase programme (one year from now, albeit subject to many conditions) balances the choice not to include the change in policy in the written statement, as it indicates that the discussion within the Committee is already at a quite advanced stage. In essence, this gives the markets the go-ahead to revise their interest rate expectations, and starts to set the scene for a normalisation of rates.<\/span><\/p>\n

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Appendix<\/strong><\/div>\n

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Source: BONDWorld – Intesa Sanpaolo \u2013 Research Department<\/p>\n","protected":false},"excerpt":{"rendered":"

The Fed has advised the markets that in the coming months QE3 will probably be reduced, to be totally unwound by mid-2014. The policy change will depend on confirmation of the present economic outlook and is reversible, to the point that the Fed has opted to signal the move during the press conference rather than […]<\/p>\n","protected":false},"author":2,"featured_media":3542,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"telegram_tosend":false,"telegram_tosend_message":"","telegram_tosend_target":0,"footnotes":"","_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_dont_share_socialmedia":false,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[50],"tags":[],"class_list":["post-1291","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-weekly-analysis"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":6}},"_links":{"self":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1291","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/comments?post=1291"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1291\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media\/3542"}],"wp:attachment":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media?parent=1291"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/categories?post=1291"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/tags?post=1291"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}