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Friday, June 07, 2013

WSJ: Fed could slow QE later this year

by Calculated Risk on 6/07/2013 12:47:00 PM

Depending on how the economy performs over the summer, the Fed could slow QE bond purchases later this year.  The most likely time to announce a change in purchases would be either at the September or December FOMC meeting (those meetings will be followed by a Bernanke press conference). My guess right now is the Fed will wait until the end of the year or early next year, mostly because I think fiscal policy will be a significant drag on economic activity over the next couple of quarters - and also because inflation is still below the Fed's target.

From Jon Hilsenrath at the WSJ: Fed on Track to Ease Up on Bond Buying Later This Year

Federal Reserve officials are likely to signal at their June policy meeting that they're on track to begin pulling back their $85-billion-a-month bond-buying program later this year, as long as the economy doesn't disappoint.
Two keys: "later this year" if "the economy doesn't disappoint".
The central bank faces a number of challenges. One is managing the signal that they send to the market with their next series of moves.

Officials in their public statements have been trying to make clear that they are going to proceed cautiously with the bond program and are still probably years away from raising short-term interest rates, which have been near zero since late 2008.
It is clear they will not raise rates for a long time.
Officials will be updating their forecasts at the next policy meeting. One risk: Economic headwinds from tightening fiscal policy could continue longer than they expect.