A lot of framework data suggests before the Federal Open Market Committee meets Tuesday and Wednesday that the curbing of purchases could begin.
Washington – When will the U.S. Federal Reserve tighten the reins on monetary policy? This question has been driving markets since Fed Chairman Ben Bernanke announced in early summer that he would phase out billions in bond purchases by mid-2014.
A lot of framing data ahead of the Federal Open Market Committee's meeting Tuesday and Wednesday suggests the curbing of purchases could begin. However, investors had already miscalculated once when they expected a change of course before the September interest rate meeting, but the central bank then provided unabated liquidity.
Through bond purchases, the Fed has pumped about three trillion dollars (2.19 trillion euros) into the economic cycle since mid-2008 in its fight against the consequences of the financial crisis. 85 billion worth of government bonds and mortgage securities are still issued every month. Dollar on this. The Fed is keeping mum on the exact timing of the phase-out.
Bond purchases will be scaled back
In the minutes of their previous meeting in late October, members of the Federal Open Market Committee, which is responsible for monetary policy, simply let it be known that bond purchases would be scaled back "in the months ahead".
James Bullard, voting Fed member and president of the regional central bank of St. Louis, recently ventured a little further. Given the improved state of the labor market, a "small curb" on what is known in the jargon as quantitative easing (QE) purchases may be indicated at the upcoming meeting, Bullard said last Monday.
U.S. unemployment rate fell 0.3 percentage point in November to 7 percent, lowest in five years. Meanwhile, the U.S. economy grew more strongly than expected in the third quarter: The Commerce Department in Washington revised growth for July through September upward to an annual rate of 3.6 percent.
Easing tensions through budget compromise
By contrast, U.S. economic output was up 2.5 percent on an annualized basis in the second quarter and only 1.1 percent in the first quarter.
The budget compromise between Democrats and Republicans in Congress also helped to ease tensions. If the Senate seals the deal before Christmas as expected, economic risks from another administrative shutdown would be off the table for two years.
While it is likely that the 7. February, the debt ceiling would still be raised, but in the bitter budget battle, both camps seem to have agreed on a truce.
However, the experience of September, when the Fed continued bond purchases unchanged to everyone's surprise, has made analysts more cautious about. While the framework data would improve, says Joel Naroff of the strategy consulting firm Naroff Economic Advisors. "However, it is not certain that the progress made in the labor market and in growth will continue in the future."
Communicate monetary policy better
Low inflation also argues against an imminent cut: In recent months, the inflation rate has been well below the Fed's target of 2.0 percent. So the money glut of the past few years is not yet reflected in prices.
Given speculation in financial markets about the Fed's intentions, the central bank has taken it upon itself to better communicate its monetary policy. Several members of the Federal Open Market Committee had recently complained that investors would not distinguish between the two different decisions on bond purchases and the policy rate.
While quantitative easing is expected to end soon, the key interest rate will remain at a record low near zero percent for quite some time: The Fed does not want to change this level as long as the unemployment rate is above 6.5 percent.