WASHINGTON - Federal Reserve Chairman Ben Bernanke in September will trim the Fed’s monthly bond buying to $65 billion from the current pace of $85 billion, according to a growing number of economists surveyed by Bloomberg News.
Half of the economists held that view in the July 18-22 survey, up from 44 percent in last month’s poll. Even as expectations of a September taper rose, 10-year Treasury yields continued to fall last week from an almost two-year high after Bernanke said reducing bond buying wouldn’t constitute policy-tightening.
“The markets have adjusted to the new information that the Fed is likely to reduce purchases over the near term, and they’ve come to terms with it,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit.
None of the 54 economists surveyed expects the Federal Open Market Committee to begin paring its purchases at its meeting scheduled for next Tuesday and Wednesday.
In its first trim, the committee will probably cut monthly bond buying by $20 billion, with purchases divided between $35 billion in Treasuries and $30 billion in mortgage-backed securities, according to the median estimate of economists.
The central bank will probably halt the asset purchases in the second quarter of next year, according to half the economists. Twenty-four percent forecast the committee will end so-called quantitative easing in the third quarter of 2014.
The Fed will buy $1.32 trillion in bonds at the completion of its third round of bond buying, according to the median estimate. The Fed committee began with $40 billion in monthly mortgage bond purchases in September and added $45 billion in monthly Treasury purchases in December.
The yield on the 10-year Treasury note soared to an almost 2-year high of 2.75 percent on July 8 from 2.19 percent on June 18, the day before Bernanke said the Fed might consider reducing bond purchases this year if the economy performs in line with the central bank’s forecast.
The yield fell 0.04 percent to 2.49 percent on July 17, when Bernanke told a congressional panel that he hasn’t put bond purchases “on a preset course” but will adjust them based on economic data. The yield rose 0.03 percent to 2.51 percent at 9:25 a.m. in New York.
“It would be appropriate to begin to moderate the monthly pace of purchases later this year” if economic data match Fed forecasts, Bernanke told lawmakers. “If the subsequent data continued to confirm this pattern of ongoing economic improvement and normalizing inflation, we expected to continue to reduce the pace of purchases in measured steps through the first half of next year, ending them around midyear.”
The Fed chairman plans to hold his next news conference after the committee’s Sept. 17-18 meeting, when Fed officials will next update their forecasts for growth, unemployment and inflation.
Business, Pages 30 on 07/24/2013