Fed Considers Tapering Decision

fedEuropean equities are facing selling pressure on Tuesday, sliding off their multi-year highs, and U.S. equity futures are pointing lower due to growing speculation that the Federal Reserve will soon announce at the conclusion of their 2-day September meeting on Wednesday that the central bank will slowly begin to moderate the pace of their $ 85 billion monthly asset purchase program, commonly known as quantitative easing (QE III).

At the end of the September Fed meeting, Chairman Ben Bernanke is expected to announce plans for the Federal Reserve to moderate or “taper” their monthly asset purchases of $ 40 billion mortgage backed securities and $ 45 billion in Treasuries somewhere in the range of $ 5- 15 billion a month.

Nick Beecroft, Chairman from Saxo Capital Markets was asked on Bloomberg’s Countdown if he is in the tapering camp and expects some type of reduction in the Fed’s asset purchases.

“Yes, I think so…probably a soft rather dovish tapering of the order of $10 billion just off Treasury purchases with mortgage backed securities left unchanged” Beecroft said.

Beecroft expects tapering to be completed by June of 2014, matching Fed Chairman Bernanke’s previous estimate for tapering after forecasting continued U.S. growth in 2014.

Bernanke: On Moderating The Fed’s Asset Purchases

Before the Committee On Financial Services at the U.S. House of Representatives on July 17, 2013 Federal Reserve Chairman Ben Bernanke outlined the economic conditions for the Federal Reserve to begin moderating their quantitative easing program.

Bernanke said that Committee participants expect inflation moving back toward the Fed’s 2 percent objective over time.

“If the incoming data were to be broadly consistent with these projections, we anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year” Bernanke said.

“At that point, if the economy had evolved along the lines we anticipated, the recovery would have gained further momentum, unemployment would be in the vicinity of 7 percent, and inflation would be moving toward our 2 percent objective. Such outcomes would be fully consistent with the goals of the asset purchase program that we established in September” Bernanke explained.

Bernanke later emphasized that the specific numbers for unemployment and inflation in the guidance are thresholds, not triggers.

During the first seven months of 2013, the U.S. economy averaged 192,000 new jobs.

On September 6th the August employment report was released from the U.S. Labor Department which showed tepid U.S. job growth.

In August the U.S. unemployment rate lowered to 7.3 percent from 7.4 percent as more Americans dropped out of the labor market. The labor participation rate dropped to 63.2 percent from 63.4 percent, the lowest level since the summer of 1978.

The U.S. economy added 169,000 non-farm payroll jobs in August, lower than 177,00 estimate from briefing.com and July’s non-farm payroll number was revised lower to 104,000 from 162,000, the lowest increase since June 2012.

Meanwhile, June’s non-farm payroll number was revised lower to 172,000 from 188,000. The combined revisions for June and July were lowered by 74,000.

The U.S. Gross Domestic Product (GDP) for the second quarter of 2013 grew at a pace of 1.7 percent, higher than most consensus estimates while the U.S. growth rate during the first quarter of 2013 was revised lower to 1.1 percent from 1.8 percent.

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