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Yellen to Back Modest Tapering After Jan. Jobs Data: Economists 2014-02-07 19:14:59.813 GMT
By Vivien Lou Chen Feb. 7 (Bloomberg) -- Yellen won’t be swayed by Jan. jobs report into backing away from support for $10b/meeting tapering pace in semi-annual testimony to Congress, said economists Michael Gapen of Barclays and Carl Tannenbaum at Northern Trust. * Yellen probably won’t mention $10b in context of future tapering moves, and will instead refer to Fed’s Dec. and Jan. decisions when she delivers her first Congressional testimony on Tuesday and Thursday, Gapen and Tannenbaum said in phone interviews * “She’ll make it clear there’s a regular pattern here and make the same statement Ben has made: that absent a significant shock, tapering will continue at a pace similar to in the past”: Tannenbaum; “there’s no value in making promises” * Tannenbaum, Gapen, Capital Economics, GMP and UniCredit are among those who say Yellen and Fed will stick to path of reducing QE purchases from current level of $65b/mo. * Jan. jobs report “is a mixed report overall and I believe she will read it as evidence that monetary policy needs to remain accommodative”: Gapen; “even with tapering, the balance sheet is rising, which will help keep rates low” * Gapen says he expects Fed to keep tapering by $10b at each meeting through Sept. and by $15b in Oct., though odds of pause in March are rising * Unemployment rate, currently at 6.6% as of Jan., is approaching 6.5% jobless rate threshold and raising questions about whether Fed will need to tweak guidance as soon as next meeting in March * Declining unemployment rate means adjusting forward guidance on rates becomes more urgent, UniCredit economist Harm Bandholz wrote in note * Yellen faces challenge of how quickly to boost near-zero rates to more normal level of ~4%, according to Capital Economics economist Paul Dales; she may move Fed away from emphasis on unemployment rate and return to use of a calendar date over time * “Yellen will remind people that getting a clear picture of the labor market is not easy to do, and she won’t back away from the threshold” in her testimony, Tannenbaum said. “Instead, she’ll say that, in practice, other factors need to be considered” besides unemployment rate * Tone of her remarks on U.S. economy won’t differ much from Fed’s most recent statements, projections and minutes: Gapen * “She’ll say the committee sees pace of activity accelerating in recent quarters, and the labor market making progress”: Gapen * “With degree of fiscal drag waning, there’s confidence stronger growth will persist and gains in the labor market will continue”: Gapen; “inflation pressures are still muted and the Fed can continue to taper gradually and at a moderate pace” * NOTE: Yellen appears before House Financial Services Committee in Washington at 10:00 am on Tuesday, and Senate Banking Committee at 10:30am on Thursday
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To contact the reporter on this story: Vivien Lou Chen in San Francisco at +1-415-617-7078 or vchen1@bloomberg.net
To contact the editor responsible for this story: James Holloway at +1-212-617-4454 or jholloway8@bloomberg.net