When Will The Fed Taper?

When Will The Fed Taper?

That is the burning question in the minds of traders, analysts, and investors. isn’t it?

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Considering the surprise Bernanke gave us during the last FOMC Meeting, it’s safe to say that most of us are uncertain when tapering will take place…  With Fed officials giving us the regular runarounds, it’s important we examine what they are saying (between the lines) exactly:

  • Fed Chairman Ben Bernanke: General framework for moderating the pace of purchases this year remains the same. There is no fixed calendar for tapering, it could begin this year, depending on data.
  • Fed Bullard (dovish, FOMC voter): Oct meeting is a ‘live meeting,’ possible FOMC could be comfortable with Oct taper; Fed decision not to taper at Sept meeting was a close call. Backs continued QE, reiterates Fed policy is data dependent
  • Fed Dudley (dove, FOMC voter): Could take some time for economy to reach the 6.5% unemployment threshold; labor market improvements have likely been overstated. Cannot cut the pace of QE buys until confident in labor market improvement. There has been no meaningful increase in the pace of the recovery.
  • Fed Lacker (hawk, FOMC non-voter): Would be difficult to start taper in Oct without losing face (but it could be done in principle based on data), but don’t see any reason why the taper can’t start in Dec.
  • Fed Fisher (hawk, alternate on FOMC): Argued against the Fed’s decision last week not to taper; decision not to taper hurt Fed credibility.
  • Fed Lockhart (moderate, FOMC non-voter): Lower participation rate could mean lower economic potential; there are many different ways to explain what has caused the lower participation rate.  Would be difficult to see reaching conditions that would warrant QE taper at Oct meeting; was a close call in Sept to not taper.
  • Fed Stein (dove, FOMC voter): Sept decision against taper was ‘close’, would have been ok with a decision to taper then – Tapering should be tied to labor market improvement; perhaps a set amount of taper for every 10bps of decline in unemployment.

In essence, most officials said that the September meeting was a “close call”, and some even mentioned the threat to Fed’s credibility by not tapering; however, with Bernanke insisting that tapering will depend on data, I believe we are actually much closer to tapering than most analysts would think.

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I agree with what PIMCO’s Bill Gross said on September 19th that “Fed taper decision could come at the December meeting, yesterday’s decision is seen as a ‘handoff’ between Bernanke and Yellen”, but obviously October’s Nonfarm Payroll report will play a huge part in this, or simply put, unless we get a very impressive NFP report on October 4, chances are that Fed will not taper until 2014.

All in all I still believe in the long-term dollar bullish trend, since Fed Taper is still on the table, and according to some Fed officials, it could still happen in October.  So I would be looking to SELL EURUSD on rally and BUY USDJPY on dips, and possibly add to my positions if the October NFP comes in beating expectation.

Thanks,

henry-sig

 

 

 

 

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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