Fed tipped to refrain from QE taper until 2014

Fed tipped to refrain from QE taper until 2014
According to economists, the US Federal Reserve is likely to maintain the current pace of QE until March next year as the world's biggest economy grapples with fiscal woes.

The Fed is likely to refrain from reducing its USD 85 billion monthly bond buying program for the next few months as the release of key economic data was interrupted by a 16-day government shutdown, which may have chopped off USD 24 billion from the economy.

The government shutdown is likely to have shaved off 0.3 percentage point from US Q4 GDP growth as federal spending fell.

The shutdown also idled as many as 800,000 federal employees, hurting domestic consumption.
The Fed at its September 2013 meet maintained status quo on monetary policy with chairman Ben Bernanke admitting that the condition of the country's labour market recovery remained far from satisfactory, vindicating the decision to delay tapering of stimulus.

The September 2013 non-farm payrolls data has not been made available due to the government shutdown. The government shutdown may have also made an impact on the job market as companies which dependent on government spending may have laid off workers.

In August 2013, the economy created 169,000 jobs, less than forecast, a sign that the US job market recovery remains tepid.

At the same time, the recent slump in consumer confidence has heightened fears that household spending, the backbone of the economy may slow amid weakening job gains and fiscal concerns, boosting the case for the Fed to maintain QE.

Dion Global Solutions Ltd.

Story first published: Monday, October 21, 2013, 9:12 [IST]
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