Richard Fisher, president of the Dallas Federal Reserve and one of the U.S. central bank’s arch inflation hawks, took us by surprise this week – he told Reuters that, given all the uncertainty generated by the government shutdown, it would not be prudent for the Fed to reduce its bond-buying stimulus this month.
You have to give Federal Reserve Chairman Ben Bernanke credit for standing his ground on data-dependence. Despite widespread suspicions, including on this blog, that the central bank would begin reducing the pace of its bond-buying stimulus in September simply because the markets were expecting it, the Fed chose to hold off in the face of a still-fragile economy.
Germany’s Ifo sentiment index is the big data release of the day and is forecast to continue its upward trajectory after the country’s PMI survey on Monday showed the private sector growing at its fastest rate since January.
It’s hard to shake the feeling that the Federal Reserve is about to begin pulling back on stimulus not just on the back of better economic data, but also because financial markets have already priced it in. The band-aid ripping debate over an eventual tapering of bond purchases that started in May was so painful, Fed officials simply don’t want to go through it again.
Now that the outcome of one of the most anticipated Federal Reserve monetary policy meetings in history is just hours away, most investors and traders have settled on the view that the central bank will announce a plan to trim the pace of its $85 billion in monthly purchases of government and mortgage-backed securities on Wednesday. We just don’t know which, if any, of the two asset classes it will focus on, and by how much it will taper what it buys each month.
It’s official: Instead of policy doves on the U.S. central bank’s Federal Open Market Committee, there are now only “non-hawks.” A research note from Thomas Lam at OSK-DMG used the term in referring to recent remarks from once more dovish officials like Charles Evans of the Chicago Fed and San Francisco Fed President John Williams.