WASHINGTON (12/17/13)--A majority of economists surveyed in prominent polls don't expect the Federal Reserve to rein in quantitative easing after a key meeting this week.
Just over half (55%) of economists polled by USA Today, predicted that the Fed won't start cutting its stimulus program until January (USA Today Dec. 15). Only slightly more than a third (34%) of economists polled by Bloomberg earlier this month, predicted that the Fed will taper its stimulus before the new year, while 40% said they expected a contraction in March (Bloomberg.com Dec 16). Half of the 60 economists polled by Reuters last week also said that they don't expect the Fed to ease its asset purchasing program until March (Reuters Dec. 15).
The central bank's Federal Open Market Committee is meeting on Tuesday and Wednesday--the first meeting since a number of reports signaled substantial economic growth since the end of the Great Recession. (Watch CUNA's News Now for news from the meetings.)
The House of Representatives' agreement last week on a two-year budget deal also will reduce uncertainty about fiscal policy, if both the Senate and the President approve of the legislation.
The Fed's monthly $85 billion worth of bond purchases has put downward pressure on interest rates and upward pressure on stock prices since it was launched in August 2012.
PNC Financial Services chief economist Stuart Hoffman told USA Today that the Fed is likely to wait until January, when more complete information about holiday retail sales and year-end economic growth will be available, to move toward winding down the purchases.
Barclays Capital economist Michael Gapen told the paper that the Fed won't change tack until March, due to low inflation and a shrinking labor force--rather than strong hiring and consumer demand--driving some of the decline in the unemployment rate.
Since surprising observers and investors by maintaining the scope of the quantitative easing program in September, the Fed has stressed that it is not abiding by "a pre-set course." Fed Vice Chair Janet Yellen, the nominee to replace current chair Ben Bernanke, told the Senate Banking Committee Nov. 14 that the central bank is dealing with "unprecedented circumstances."
Fed officials have said, according to Bloomberg, that they will stay the course with its asset-buying regime "until the outlook for the labor market has improved substantially."
Key meetings are also being held by the Bank of Japan and the European Union this week. The Bank of Japan is expected to maintain its aggressive expansionary monetary policy after meeting on Thursday and Friday, according to Reuters, and E.U. leaders are discussing a final agreement on a process for winding up failing banks within the euro zone.