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20 Jun 2013
Flash: Bernanke gets explicit - OCBC Bank
FXstreet.com (Barcelona) - Emmanuel Ng of OCBC Bank notes that USD jumped against the majors and Treasuries crashed in NY after the Fed chairman noted that “it would be appropriate to moderate the monthly pace of asset purchases “later this year”.
In addition, Ng sees that he added that if appropriate, the tapering would proceed “in measured steps through the first half of next year” while the unemployment rate is projected to have declined to 7.0% when the bond purchases expected to cease by the middle of next year. He notes that the markets reacted significantly to this new found clarity and all but ignored Bernanke’s addition that the Fed retains the flexibility to reverse or halt the tapering if necessary. Ng finishes by writing, “Meanwhile, in its FOMC statement, the Fed noted a “further” improvement in the labor market and added that downside risks to the economy and labor market as having diminished.”
In the near term, Ng feels that investors are expected to continue to digest the imminent prospects of the Fed’s tapering, with the street now looking towards the September FOMC as the watershed. He notes that the Fed chairman also took pains to differentiate between a tapering and a tightening, stating that the 6.5% unemployment rate and 2.5% inflation expectations thresholds merely provided a reference for consideration, as opposed to being actual triggers. Notably, Ng adds that in its revised quarterly forecasts, although the Fed revised lower its PCE forecasts, the unemployment rate projections were improved with the rate now estimated to fall within 6.5-6.8% in 4Q 2014 Previous: 6.7-7.0%) and ease to 5.8-6.2 in 4Q 15. He writes, “Previously, the unemployment rate had been projected to remain above 6.5% until 2015. Nonetheless, an actual shift to a tightening phase by the Fed may thus be early days yet, with 14 out of 19 board members expecting a rate hike only sometime in 2015.”
In addition, Ng sees that he added that if appropriate, the tapering would proceed “in measured steps through the first half of next year” while the unemployment rate is projected to have declined to 7.0% when the bond purchases expected to cease by the middle of next year. He notes that the markets reacted significantly to this new found clarity and all but ignored Bernanke’s addition that the Fed retains the flexibility to reverse or halt the tapering if necessary. Ng finishes by writing, “Meanwhile, in its FOMC statement, the Fed noted a “further” improvement in the labor market and added that downside risks to the economy and labor market as having diminished.”
In the near term, Ng feels that investors are expected to continue to digest the imminent prospects of the Fed’s tapering, with the street now looking towards the September FOMC as the watershed. He notes that the Fed chairman also took pains to differentiate between a tapering and a tightening, stating that the 6.5% unemployment rate and 2.5% inflation expectations thresholds merely provided a reference for consideration, as opposed to being actual triggers. Notably, Ng adds that in its revised quarterly forecasts, although the Fed revised lower its PCE forecasts, the unemployment rate projections were improved with the rate now estimated to fall within 6.5-6.8% in 4Q 2014 Previous: 6.7-7.0%) and ease to 5.8-6.2 in 4Q 15. He writes, “Previously, the unemployment rate had been projected to remain above 6.5% until 2015. Nonetheless, an actual shift to a tightening phase by the Fed may thus be early days yet, with 14 out of 19 board members expecting a rate hike only sometime in 2015.”