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Fed could start to trim asset program in September, economists says: Reuters poll

A view shows the Federal Reserve building in Washington August 22, 2012. REUTERS/Larry Downing
A view shows the Federal Reserve building in Washington August 22, 2012. REUTERS/Larry Downing

By Deepti Govind

(Reuters) - The Federal Reserve will start trimming its monthly spending on asset purchases before the end of the year, and it could do so as soon as September, a Reuters poll of economists showed on Friday.

An overwhelming majority of economists also expect the Fed to stop its current bond-purchases program altogether by June next year, taking Chairman Ben Bernanke at his word after a two-day Fed policy meeting earlier this week.

With recent U.S. economic data painting a better picture, particularly a rise in the pace of hiring and an improving housing market, the attention is on when the Fed will start taking the foot off the pedal on its ultra-easy monetary policy.

Of the 60 economists polled by Reuters, nearly half - 28 economists - expect the Fed to start reducing the amount of monthly purchases by September and almost all agreed that it will happen before the end of this year.

Only five of those economists forecast the Fed will wait until next year to start the cutting back on bond-purchases.

"It's been slow growth but it's been decent, especially given the fiscal constraints that the economy is facing. The concerns have definitely dissipated and I think it does warrant a tapering," said Justin Lederer, strategist at Cantor Fitzgerald.

"We've been going through this for five years, and this is probably one of the first times that the economy feels like it is on some path of strength."

The poll's findings are in line with a Reuters survey of 17 primary dealers - the banks and brokers doing business directly with the Fed - conducted immediately after Wednesday's Fed meeting.

Those forecasts from the primary dealers are included in the latest poll.

With its policy rate near zero, the Fed has been buying Treasuries and mortgage-backed securities worth $85 billion each month to foster growth and employment, and said on Wednesday it will continue to do so.

Economists in the poll predicted that the Fed would trim the $85 billion monthly asset buying by $20 billion at first, with forecasts ranging from $10 billion to $45 billion.

Global stock markets, along with many of the world's major government bonds and commodities, are still on course for their worst week in months, as investors prepare for the beginning of the end of the Fed's massive monthly liquidity injections.

Still, even after the recent sell-off, most stock markets will still be in positive territory for the year.

"Even with the Fed telegraphing a slowdown in the pace of asset purchases, they will still be buying a significant amount of securities," said Millan Mulraine, TD Securities' U.S. rate strategist, in a research report on Thursday.

Nearly all analysts expect the Fed to raise its key interest rate in 2015, echoing the findings of Wednesday's primary dealers poll.

(Editing by Chizu Nomiyama)

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