Will the Fed taper this month?

by Ryan Smith06 Dec 2013
With better-than-expected job growth and new home sales, could the Federal Reserve be about to wind back its $85bn-per-month bond-buying program?

According to the manager of the world’s biggest bond fund, the recent strong economic data means that there’s an even chance the Fed will begin to taper the program this month. That would be bad news for the mortgage industry; the quantitative easing program led to historically low interest rates and spurred the refinance boom.

But Bill Gross, manager of Pacific Investment Co., told Bloomberg that the Fed is looking for a way to wind down QE, and strong job growth and home sales might give the agency the impetus it needs.

“It’s at least 50-50 now,” Gross said. “There was some logic for a January starting point, but it’s clear the Fed wants out.”

Employers added 203,000 jobs in November, beating economists’ projections. That’s on top of a revised 200,000 new jobs in October – the strongest back-to-back gain since February and March, according to Bloomberg. In addition, the jobless rate dropped to a 5-year low of 7%.

With those indicators signaling a strengthening economy, the Fed may take the opportunity to begin winding down QE. Still, growth is only at about 2%, which may make the agency proceed with caution, Gross told Bloomberg.

There’s little doubt that mortgage interest rates will rise if the Fed tapers. Just the expectation that the taper would begin in September caused rates to jump more than a full percentage point over the summer, strangling the refi boom.
 

COMMENTS

  • by George | 12/6/2013 9:52:47 AM

    How much of this job growth is seasonal, holiday temporary employment? Will it be sustained after the new year? What do the jobs pay? Are they minimum wage service jobs? Give us some more details about the substance of these numbers, please!

  • by Luis | 12/6/2013 10:03:08 AM

    Exactly my thoughts George.

  • by Mendota | 12/6/2013 10:05:47 AM

    What is frustrating about this is both Bernanke and Yellen have pledged their commitment to continued QE. In fact, Yellen has stated that not only will she keep the status quo with the 85 billion, but there is a case to be made for more. During testimony, she flat out said these improvements in numbers are on the surface and the economy is in a fragile state. She said even with QE in place we are struggling to make headway. So reducing QE will only make the recovery that much more difficult and may even push us back into recession.

    She said all of this just days ago. How on Earth can everyone ignore this and talk about tapering when the top dog herself has said no tapering is coming due to the above reasons? In fact, the previous MPA article you guys emailed me an hour ago even highlighted Yellen's commitment to continuing QE and leaving the 85 billion in place.

    Please help me understand...

Poll

Is TILA-RESPA a good or bad thing long term?