GIH: $10 Billion in more taper from the Fed, indicates further tapering. A bold move against the backdrop of the crisis in emerging market currencies, which caused a stock market sell off and EM Currency sell off. Unlike many market analysts, The Fed “Sees Growth”:
WASHINGTON — The Federal Reserve announced Wednesday another $10 billion cut in its monthly bond purchases, in a statement that attributed the decision to “growing underlying strength in the broader economy.”
The statement, published after a two-day meeting of the Fed’s policy-making committee, reflected the optimism of Fed officials that the economy is finally poised for faster growth after years of false starts and setbacks.
It was the committee’s first unanimous decision since 2011.
The Fed said it would expand its holdings of Treasury and mortgage-backed securities by $65 billion in February, down from $75 billion in January and $85 billion each month last year. It added that it was “likely” to continue the pullback, suggesting a similar cut is probable at its next meeting, in March.
The Fed did not change its forward guidance that it intends to keep benchmark short-term interest rates near zero “well past the time” that the unemployment rate falls below 6.5 percent. The rate stood at 6.7 percent in December.
Consensus that the Fed would extend its $10bn taper from December with a further $10 bn taper today (reducing the monthly flow to a ‘mere’ $65 billion per month – $30bn MBS, $35bn TSY) was spot on. We suspect the view, despite the clear interconnectedness of markets (and flows), of the FOMC is that “it’s not our problem, mate” when it comes to EM turmoil.
- *FED TAPERS BOND BUYING TO $65 BLN MONTHLY PACE FROM $75 BLN
- *FED SAYS LABOR MARKET `MIXED,’ `SHOWED FURTHER IMPROVEMENT’
- *FED REITERATES LOW RATES UNTIL JOBLESS RATE `WELL PAST’ 6.5%
- *FED REPEATS RISKS TO OUTLOOK HAVE BECOME `MORE NEARLY BALANCED’
- *FED SAYS UNEMPLOYMENT HAS DECLINED `BUT REMAINS ELEVATED’
Of course, “communication” was heavy with forward guidance on lower for longer stressed. We’ll see if the market buys the dichotomy of hawkish real tapering and dovish promises…remember “tapering is not tightening.”
Pre-FOMC: S&P Futs 1775, Gold $1267, 10Y 2.71%, 2Y 35.5bps, USDJPY 102, EM FX 85.67, WTI $97.35, IG 72bps, HY $106.35
Full redline below…
