What could speed up the taper?

by Ryan Smith20 Dec 2013
On Wednesday the Federal Reserve announced that it would taper its bond buying by $10bn per month, split evenly between its purchase of Treasury bonds and mortgage-backed securities.

Fed Chairman Ben Bernanke said in a press conference Wednesday that the Fed would most likely continue to wind back purchases, $10bn at a time over the next several meetings of its rule-making committee. However, he said, that decision was more of a flexible guideline than a hard-and-fast policy.

“The process will be deliberate and data-dependent,” he said. “…If the economy slows for some reason or we’re disappointed in the outcomes, we could skip a meeting or two. On the other hand, if things really pick up we could go faster. That said, my expectation is moderate steps going forward.”

The Fed will continue tapering at a moderate pace unless there’s a significant jump in the economy, predicted Bryan McNee, vice president and senior bond analyst for MBSAuthority.com.

“As far as accelerating it, it would have to show a real pick-up in growth,” he said. “We’ve been spinning our tires in this economy because we haven’t had a budget. Now that we have a budget there’s a chance those tires might grip the pavement and move us forward.”

If the budget deal doesn’t provide the economy a shot in the arm to accelerate growth, McNee said, the Fed would continue to proceed with caution.

“They want to get out (of the bond-buying program), but they want to do it in an orderly fashion,” he said. “… As long as those projections show moderate growth on a continuing trend, they'll keep up a moderate taper.

So how long before the program is totally wound down?

“It would be very realistic to see them this summer at a $55bn range,” McNee said. “The question is, could they decrease it enough between summer and the end of the year to get to zero? I don’t know. The potential’s there, but I don’t know if they can wrap it up fast enough to get to zero by the end of 2014.”


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