MacroScope

Time to taper the taper talk?

It’s been three months since the Federal Reserve first hinted that it’s going to have to ease off on its extraordinary monetary stimulus, but financial markets are still not settled on the matter.

But while volatility is on the rise – surely partly a result of thinned trading volumes during the peak summer vacation season – the consensus around when the Fed will start cutting back hasn’t budged.

That makes endless daily reports from traders linking that to the latest falls in asset prices, particularly U.S. Treasuries and non-U.S. share prices, not terribly convincing.

Reuters has conducted nine separate polls of financial forecasters since Fed Chairman Ben Bernanke dropped his first hint in May. These include economists, and market strategists covering foreign exchange, stock markets and bonds.

All of them have concluded, from the first poll in early June, that September is the most likely month for the Fed to start trimming back its stimulus.

Yellen likely to replace Bernanke at Fed, but beware “overwhelming” top picks

Reuters has just published a poll of economists that shows Federal Reserve Vice-Chair Janet Yellen is the overwhelming favorite pick for President Obama to replace Ben Bernanke as Fed Chairman next year.

The poll conclusions are based on the collective thoughts of dozens of professionals who are not only paid to make these kinds of predictions, but who are also likely to have been in a conversation with people who ought to know.

But it is worth noting one spectacularly wrong call from recent history.

In a similar Reuters poll, this time just days before UK finance minister George Osborne reported that he had chosen Mark Carney, Governor of the Bank of Canada, as new Bank of England Governor, the overwhelming conclusion among forecasters was that outgoing governor Mervyn King’s deputy, Paul Tucker, would get the job.

More Fed QE: done deal or Pavlovian response?

“Will he or won’t he?” That’s what investors, traders and policy-watchers in the financial markets are pondering, frozen at their terminals waiting to find out if Federal Reserve Chairman Ben Bernanke will persuade his colleagues to print more money this week.

Among economists who work for primary bond dealers, the firms who sell government bonds directly to the Fed, there’s a striking conviction rate that he will, 68 percent, according to the latest Reuters Poll of probabilities.

The wider forecasting community isn’t far behind, at 65 percent.

While that kind of probability is more than enough to make people paid handsomely to take huge bets with other people’s money to confidently say something is a done deal, the real policy decision is probably a lot closer.

Economic faceoff

Supporters of Democratic presidential nominee Senator Barack Obama and Republican nominee Senator Barack Obama gather near the site of the third and final presidential debate at Hofstra UniversityDemocratic presidential nominee Barack Obama and Republican nominee John McCain meet tonight at Hofstra University in New York, their final scheduled appearance together before election day.

The third encounter was meant to be the debate to focus the economy and domestic issues. But the economy couldn’t wait.

The $700 billion government bailout was the first topic at the almost-didn’t-happen-first-debate with PBS moderator Jim Lehrer.