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18 Jun 2013
Flash: Plans for tapering – Societe Generale
FXstreet.com (London) - Kit Juckes at Societe Generale explains that Ben (Bernanke) said that if things go on improving he might taper sooner rather than later.
"John (Hilsenrath, WSJ), pointed out that this didn't mean imminent tapering. Robin (Harding, FT) suggests that the Fed will not back off but action is dependent on the economy." Hilsenrath and Harding aren't really very far apart, said Kit Juckes, but the reversal of recent trends (rising US yields, tumbling high-beta currencies, wider credit spreads) was put on hold.
He continues to say, "...current policy is creating market and economic distortions just as past periods did. The reaction to taper talk in EM, commodities and volatility shows where bubbles have been inflated. This is the most powerful argument in favour of the Fed taking the first baby-steps on the path away from super-easy policy. Another issue is that nominal GDP growth is slowing - 3.4% y/y in Q1 2013 after a post-crisis peak at 4.5% a year ago. SG economic forecasts look for a re-acceleration from here. The Fed may not need evidence of a return to ‘old normal' growth or signs of a re-acceleration in CPI or wage inflation to justify tapering. But nominal growth does need to turn a bit higher".
"John (Hilsenrath, WSJ), pointed out that this didn't mean imminent tapering. Robin (Harding, FT) suggests that the Fed will not back off but action is dependent on the economy." Hilsenrath and Harding aren't really very far apart, said Kit Juckes, but the reversal of recent trends (rising US yields, tumbling high-beta currencies, wider credit spreads) was put on hold.
He continues to say, "...current policy is creating market and economic distortions just as past periods did. The reaction to taper talk in EM, commodities and volatility shows where bubbles have been inflated. This is the most powerful argument in favour of the Fed taking the first baby-steps on the path away from super-easy policy. Another issue is that nominal GDP growth is slowing - 3.4% y/y in Q1 2013 after a post-crisis peak at 4.5% a year ago. SG economic forecasts look for a re-acceleration from here. The Fed may not need evidence of a return to ‘old normal' growth or signs of a re-acceleration in CPI or wage inflation to justify tapering. But nominal growth does need to turn a bit higher".