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Fed Outlook: Third taper on the way?

H.S. Borji
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Fed Outlook: Third taper on the way?

The Federal Reserve may have to trim bond purchases at a faster rate to account for the surge in economic growth in the second half of 2013, according to Fed Bank of Philadelphia President Charles Plosser.

The accelerated pace of real output growth in the latter half of 2013 may warrant an expedited tapering process, Plosser told a Paris panel on Monday. Latest GDP figures show the US economy expanded 3.3 percent in the second half of last year, up from 1.8 percent in the first six months.

“Reducing the pace of asset purchases in measured steps is moving in the right direction,” Plosser said on Monday. “But the pace may leave us well behind the curve if the economy continues to play out according to the FOMC forecasts.”

The Federal Open Market Committee initiated the tapering process in December, trimming the pace of bond buying by $10 billion. The Fed pared asset purchases by another $10 billion in January. Ahead of next week’s policy meetings, however, the markets are uncertain whether Fed will continue the process amid a slew of disappointing data releases. According to economists, inclement weather this winter has weighed on consumer spending, industrial output and even hiring.

For Plosser, however, the Fed has already embarked on a measured approach to stimulus reduction, one that has resonated with the markets. Diverging from this process could ignite more speculation in the financial markets.

“Given the fact that we’ve embarked on measured reductions, it’s important to give some certainty or at least clarity to the markets on what we’re doing,” Plosser said Monday in a television interview with Bloomberg News.

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