Tuesday
July 22, 2014

Fed Likely to Postpone Tapering to Next Year

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Fed Likely to Postpone Tapering to Next Year

The Federal Reserve is reportedly no longer in a rush to cut back on the $85 billion it spends per month on its bond-purchasing campaign, which has been helping to keep borrowing costs low. The Fed is now unlikely to start tapering its program until next year, The New York Times reports.

Job growth has improved the last few months, which the Fed has said it will use as a gauge to decide when to start winding down its bond purchases.

In June, Fed Chairman Ben Bernanke predicted that the Fed would begin to taper its purchases by the end of this year. The announcement brought a shock-wave to markets, and drove 30-year fixed-rate mortgages up a full percentage point. 

The Fed meets next week for its final policy-making committee meeting of the year, and they may still decide to make a cut next week. However, based on recent public comments from members, the move is looking unlikely, The New York Times reports. 

Vincent Reinhart, a former head of the Fed’s monetary policy staff and now the chief United States economist at Morgan Stanley, believes the committee will use its December meeting to set a plan for tapering, but likely won’t start to retreat on its bond purchases until March. 

The Fed has announced a commitment to hold short-term interest rates near zero as long as the unemployment rate is above 6.5 percent. In November, the rate was 7 percent. 

When Bernanke first hinted at tapering plans in June, investors started to drive up rates across the board, The New York Times reports. But while the Fed is close to tapering, it’s not close to raising interest rates, and “markets are beginning to appreciate that they are separate tools,” Bernanke said last month. 

Source: “Fed’s Plan to Taper Stimulus Effort Is Not Expected Until Next Year,” The New York Times (Dec. 8, 2013)

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