Nick Parsons, head of Research, UK & Europe, National Australia Bank spoke to CNBC-TV18's Anuj Singhal and Reema Tendulkar regarding the Federal Open Market Committee (FOMC) meet today and how are markets expected to react going ahead.
Also Read: See end of QE by Q3 2014, Yellen to remain predictable: UBS
Below are excerpts from the interview:
Anuj: Do you think Fed will continue with its taper programme and have the markets now baked that in?
A: Fed will continue the taper programme and would like to end it and get over it. It would like to view it through the rear-view mirror rather than the windscreen because it is a bit of distraction for policy makers. Once it is out of way, there will be lot of relief for the Fed because the potential for dispute, squabbling and uncertainty will have been removed.
So, tonight we may see another USD 10 billion reduction in the amount stimulus. A phrase that says their base case is to continue roughly at that pace dependent on incoming data. However, the tone of the statement is also important because it's Janet Yellen's first statement and she did say that a delayed hearing, a few weeks ago that they had to keep a close eye on whether the soft patch was purely weather related or something more substantial.
This evening we will also see a new set of economic forecasts from the FOMC. One will be looking to see if they are still of the view that the US economy is only temporarily set back by the dreadful winter seen there and are still track for the growth they are expecting in December.
Reema: If we do get the base case scenario which is USD 10 billion taper right now, then how do you expect the markets to react? Is there a possibility that Yellen could alter her forward policy statement and perhaps not link it anymore to the unemployment rate and if yes, how will it be read?
A: The reaction to the first question is likely a yawn in the markets and that is really what they would be hoping for because if there is no substantive reaction, the policy makers will feel it's a job well done.
In terms of changing the focus of the intermediate signals that they are looking at, they are likely to say that we are still gathering information, we will adjust policy accordingly and that overtime, they will just continue with appropriate pace of removal of stimulus.
I don't think they are going to change anything, I don't think they are going to introduce anything new – they will just keep all policy options open. As long as all doors are open, all policy options are open, markets will end tonight pretty much where they begin this morning. I think the Fed will give itself a pat on the back. I don't think they want any market reaction in any direction.
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