Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  News

News

Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesHot NewsMost Read NewsRecomm.Business LeadersCalendar 

Fed, with bond taper on autopilot, free to tackle big questions

share with twitter share with LinkedIn share with facebook
share via e-mail
0
04/27/2014 | 01:31pm CET

Federal Reserve policymakers this week are set to continue paring their massive bond-buying stimulus, but below the smooth surface of a likely unanimous vote lies a deeply divided Fed struggling to lay the groundwork for more difficult decisions ahead.

Fed Chair Janet Yellen hinted at the U.S. central bank's broad agenda a couple weeks ago when she laid out three "big" issues officials need to track: the level of slack in the labor market, whether inflation is rising back toward the Fed's 2 percent goal, and the factors that could derail the economic recovery.

Unexpected "twists and turns," she said, could force the Fed to diverge from its highly telegraphed plan to end asset purchases later this year and raise interest rates in 2015.

Yellen and her colleagues are debating what economic conditions would set the stage for a rate hike, whether the Fed should start letting its balance sheet shrink before or after it acts to push up borrowing costs, and whether it should respond to the possibility of asset bubbles in some markets.

Fed officials, who will meet on Tuesday and Wednesday, disagree sharply on the answers to these questions, and consequently on the best longer-term plan for rate rises. But unlike their counterparts at the European Central Bank, who face a threat of deflation, U.S. central bankers are under little pressure to pivot quickly on policy.

"We doubt any major change will emerge" in the Fed's policy statement, said Annalisa Piazza, fixed income strategist at Newedge. The statement, to be released at 2 p.m. (1400 GMT) on Wednesday, at the close of the meeting, will not be accompanied by new economic forecasts or a news conference, events that are only scheduled quarterly.

Recent data has largely borne out the Fed's presumption that a mid-winter slowdown in the economy was due to unusually severe weather. In addition, with bond yields down and stock prices up since the Fed began tapering its asset purchases in January, market conditions are not threatening to undercut the economy's momentum.

The relative stability makes it an easy call for the Fed to trim its monthly bond buying by $10 billion for a fourth consecutive meeting. This would take the purchases down to $45 billion and put the Fed about halfway along its plan to end the quantitative easing program by late this year.

And because officials completed a much-needed revamp of a low-rate promise last month, they can now take the time to dig into the longer-term strategy that will guide them when they finally begin raising rates.

RAISING RATES: "A MATTER OF FEEL"

At the last policy meeting in March, all but one official backed a new pledge to keep rates near zero for a "considerable time" after the bond-buying ends. The lone dissenter, Minneapolis Fed President Narayana Kocherlakota, has already signaled he will not continue to dissent.

Since then, a handful of officials have suggested the Fed should be more specific about when rates will rise. Boston Fed President Eric Rosengren has floated the idea of keeping rates near zero until the economy is within one year of reaching full employment and 2 percent inflation.

Richard Fisher, who heads the Dallas Fed, panned the idea. "It is a matter of feel," he told reporters in Austin earlier this month. "I don't think you can put a specific time frame on it. And I wish we could, but I don't think that would be responsible monetary policy."

Another question policymakers need to answer in coming months is whether a test facility for conducting reverse repurchase agreements, which temporarily drain cash from the financial system and could help control market rates when the Fed tightens monetary policy, will be adopted as a key tool.

The relatively quiet bond market "allows the Fed to reflect on big-picture themes," said Thomas Costerg, economist at Standard Chartered Bank. "There is mounting pressure to clarify the exit strategy and the role of some liquidity facilities, although it is unlikely that the Fed will decide this now."

(Additional reporting by Richard Leong in New York; Editing by Leslie Adler)

By Ann Saphir and Jonathan Spicer

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news
Date Title
04:26p SEMPRA ENERGY : SoCalGas to Use Innovative Methane Capture System to Reduce Emissions During West Los Angeles Pipeline Replacement Project
04:25p France's Hollande, Villeroy warn against Le Pen's euro exit plans
04:17p NRTH ST TELE'A' : Ted Gaines sets sights on state board in 2018
04:11p FORMULA ONE WORLD CHAMPIONSHIP : Ricciardo admits qualifying crash caught him by surprise
04:06p PUBLIX SUPER MARKETS : Former Publix board member to receive the state's top honor for helping children
04:01p Guanine Market Pleased With News That Scientists Are Close To Coming Up With A Synthetic Yeast Genome - MarketIntelReports
03:56p NAMI NORTH AMERICAN MEAT INSTITUTE : Meat Institute Urges USDA/GIPSA to Abandon Its Rulemaking End-Run Around Congress and the Courts
03:51pDJWAL MART STORES : Correction to Wal-Mart Buying Spree Irks Some Hipsters Article
03:49p APPLE : Chinese court rules in favour of Apple in local design patent disputes
03:49p IDAHO INMATES : Prison violations led to amputations, death
Latest news
Advertisement
Hot News 
9.35%Infineon raises 2017 outlook on stronger automotive orders
2.89%British engineer Smiths posts higher first-half profit, reaffirms FY outlook
-1.59%ANTHEM : Grilled as It Seeks to Save Cigna Deal
3.07%EXCLUSIVE - CHINA-BACKED FUND RELAUNCHES BID FOR U.S. CHIP DEAL APPROVAL : sources
7.57%TOSHIBA : shares rise 6 percent after Effissimo increases stake
Most Read News
03/24 K BRO LINEN : Bro Announces 2016 Annual Results and Positions the Company for Growth
03/24 BRF : Brazil meat probe will show further evidence of graft - sources
03/24 TESLA : to take orders for solar roof tiles starting April
03/24 TRANSCANADA : Trump administration approves controversial Keystone pipeline
03/24 CONOCOPHILLIPS : Company grants $118,000 to support community groups
Most recommended articles
03/21 UK to investigate any UK banking involvement in 'Laundromat' case
10:51aDJWAL MART STORES : Correction to Wal-Mart Buying Spree Irks Some Hipsters Article
10:49a APPLE : Chinese court rules in favour of Apple in local design patent disputes
10:27a TESCO : nearing deal with Serious Fraud Office over accounting scandal -Sky
08:53aDJMARKET SNAPSHOT : Stock Investors Will Be Asking 'where's The Beef' As Trump Suffers A Setback