Fed on track to taper in March; chances of December or January rise: Reuters poll

Mon Dec 9, 2013 6:12pm EST

A view shows the Federal Reserve building in Washington August 22, 2012. REUTERS/Larry Downing

A view shows the Federal Reserve building in Washington August 22, 2012.

Credit: Reuters/Larry Downing

(Reuters) - The Federal Reserve will begin trimming its monthly asset purchases in March but some economists are warming up to the idea that it will do so as early as this month or at the January policy meeting, a Reuters poll showed on Monday.

Another month of strong U.S. hiring and an unexpected drop in the jobless rate reported on Friday prompted several economists to bring forward their expectations for when the Fed will begin paring back its $85 billion of monthly bond buying.

Nearly half, 29 of 63 economists, think the taper will happen in either December or January, before Janet Yellen is expected to take over from Ben Bernanke as chair of the Fed. Nine say it will happen at the U.S. central bank's Dec 17-18 meeting; 19 say in January, and one said either December or January.

In a poll taken just over two weeks ago, 16 of 62 economists were calling for a taper in January, and just three said December, with the rest saying March or later.

But the majority of economists polled, 33, still expect the Fed to start trimming its bond buying in March.

Out of 41 common contributors in both polls, 10 have now brought expectations forward. Six have pushed them ahead, while more than half, 25, have left their forecast unchanged.

World financial markets are on tenterhooks over when the Fed will taper. A decision to not cut back on bond buying in September lit a fire under many stock markets around the globe, and some have rallied to record highs.

"The recent employment data do increase the likelihood that the Fed could taper its asset purchases in December, but we believe the committee will continue to view declines in the unemployment rate as overstating the amount of improvement in labor markets," wrote economists at Barclays Capital.

And while most agree the job market is finally on the right track, there are plenty who think that inflation is not.

"The best argument for tapering is that it has to start sometime, but the low inflation trend is likely to lead policymakers to delay the initial tapering until March," said Scott Brown, chief economist with Raymond James in St. Petersburg, Florida.

The Fed has been buying long-term Treasuries and mortgage-backed securities over the past year in an attempt to keep borrowing costs low to put the economy on a path of sustainable growth and boost the jobs market.

Data on Friday showed firms hired more workers than expected in November and the jobless rate fell to a 5-year low of 7.0 percent.

A firm majority expect the Fed's current third round of asset purchases, called QE3, to end in the second half of 2014.

Consensus expectations for the size of the initial tapering were unchanged from the November 20 poll at $10 billion a month.

As in many of the past Reuters polls, a majority of respondents said the cutback would be evenly split between Treasuries and mortgage-backed securities. The rest thought the Fed would favor a larger cut in purchases of Treasuries.

(Reuters poll of primary dealers from Friday: <FED/R>)

(Reporting by Yati Himatsingka; Polling and analysis by Ashrith Doddi and Diptarka Roy; Editing by Ross Finley and Chizu Nomiyama)

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