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16 Sep 2013
Flash: Expecting a $20bn Fed taper - RBS
FXstreet.com (Barcelona) - In a research note published earlier today, Greg Gibbs, FX Strategist at RBS, notes that US Economists forecast a $20bn tapering to $65bn per month on Wednesday, split evenly between Treasuries and Agency MBS.
Key Quotes
"Our economists do not expect any tweak in the policy guidance that includes the key thresholds of 6.5% for unemployment and 2.5% for inflation. There is some risk that the Fed adjusts the guidance to keep downward pressure on yields despite QE taper."
"The Fed might lower the unemployment threshold to 6.25 or 6.0%. But we think this is unlikely with the Fed’s full-employment rate and ultimate target currently seen in the 5 to 6% range (5.6% central tendency)."
"The Fed may add a new threshold for when inflation is too low. It could say it does not expect to raise rates if inflation over two years is expected to fall below 1.0%. However, we do not expect and new lower inflation threshold."
The FOMC will deliver their forecasts for 2016 at the meeting on 18 September. If the Fed wish to implant a dovish tilt and keep a lid on rates they may opt for a lower 2016 forecast, and perhaps lower the 2015 rate forecast (implying rate hike expectations had been shifted more into the later part of 2015)."
"RBS Economists believe the end-2016 forecast will be in the 2.0% to 2.5% range. This would imply a pace of tightening of around 100bp in 2015 and 100 to 150bp in 2016. This would be a gradual pace, slower than the previous tightening cycles."
Key Quotes
"Our economists do not expect any tweak in the policy guidance that includes the key thresholds of 6.5% for unemployment and 2.5% for inflation. There is some risk that the Fed adjusts the guidance to keep downward pressure on yields despite QE taper."
"The Fed might lower the unemployment threshold to 6.25 or 6.0%. But we think this is unlikely with the Fed’s full-employment rate and ultimate target currently seen in the 5 to 6% range (5.6% central tendency)."
"The Fed may add a new threshold for when inflation is too low. It could say it does not expect to raise rates if inflation over two years is expected to fall below 1.0%. However, we do not expect and new lower inflation threshold."
The FOMC will deliver their forecasts for 2016 at the meeting on 18 September. If the Fed wish to implant a dovish tilt and keep a lid on rates they may opt for a lower 2016 forecast, and perhaps lower the 2015 rate forecast (implying rate hike expectations had been shifted more into the later part of 2015)."
"RBS Economists believe the end-2016 forecast will be in the 2.0% to 2.5% range. This would imply a pace of tightening of around 100bp in 2015 and 100 to 150bp in 2016. This would be a gradual pace, slower than the previous tightening cycles."