Fed: What's the timetable for tapering?
This week’s FOMC meeting, in contrast to September’s, is less of an issue for a market that has pushed expectations on the start of tapering into Q1 2014.
There are still a few banks expecting a December taper, but they are in the minority, with the FOMC statement watched for clues on the outlook for QE. How the Fed chooses to characterise the economic and labour market environment as well the delayed fiscal battle in Washington will be key.
A delayed budget battle in Washington and the declining trend in payrolls since the start of the year risks delaying tapering beyond Q1 2014. But without guidance from the Fed, it is difficult to push tapering expectations out into Q2 or even H2. NFP growth averaged 143k in Q3, down from 182k in Q2 and 207k in Q1, but we would also highlight the seasonality of payrolls over the last three years as a hurdle to the tapering path.
Whether it’s in the October or the December meeting, we are in need of an update on the timetable for tapering. In the meantime, the rally on risk remains in play, and this is likely to worry the hawks within the Fed who do not want to encourage thoughts of QE-infinity or QE-forever.
Fed communication is likely to remain messy as the hawks look to push through an early tapering timetable while doves focus on maintaining policy accommodation.