The FOMC today signalled that tapering of the central bank’s asset purchases is just on hold, and not off, in line with our expectations.
Thus the Fed repeated that “in judging when to moderate the pace of purchases” it will assess at its coming meetings whether economic data continue to support its “expectation of ongoing improvement” in the economy.
However, with a bit softer assessment of the economy the Fed indicated no urgency in making the tapering decision at this point.
One of the most notable changes in the FOMC statement was that the Fed acknowledged that the “recovery in the housing sector slowed somewhat in recent months.” At the same time, however, Fed officials seem to have been somewhat reassured by the recent decline in mortgage rates as the statement dropped the language used in September that “the tightening of financial conditions… could slow the pace of improvement in the economy.”
Rather surprisingly, the Fed didn’t mention the recent fiscal turmoil in Washington, which suggests a slightly less dovish tone than expected prior to the meeting.
For now, we stick to our call that tapering of QE will start at the January 2014 FOMC meeting, although we still believe that a move later rather than sooner is more likely.
Nordea