Facing up to tapering
* Fed tapering to commence this week; even if watereddown and more conditional on economy
* Australian business and consumer confidence gets a boost; were not sure it will be sustained
* Reality check: job losses gain more momentum
* Locally, RBA minutes to disclose more detail on policy bias; FOMC the main event (Thursday morning); NZ GDP also due (Thursday)
Some commencement to tapering likely this week
The FOMC meets Tues-Wed. We look for a start to Fed tapering via a fall in the volume of the $85bn asset purchases by $10bn, but for the chairman to emphasise that future steps are far from automatic (i.e., ‘data dependent’).
Lawrence Summers’ withdrawal of his name for the next Fed chairman, though significant for markets (which had moved to price in a Summers nomination in recent weeks) is irrelevant to
this week’s FOMC decision.
The US economy is making progress against fiscal restraint headwinds, estimated by the Congressional Budget Office to be around 1½% of GDP in 2103. While the last payrolls report did not shoot the lights out, our view is that the US economy and labour market are still improving.
Note that even dovish San Francisco Fed President Williams this past week described that latest jobs report as consistent with forecast gradual improvement and the unemployment rate as still a ‘very good gauge’ of the labour market. If the doves see improvement, Bernanke’s indicative plan to start tapering this year will, we expect, get up this week.
Read the full report: Market Research
NAB