Bernanke seen buying $1.14 trillion in assets by early 2014

Mortgage Bonds

In the current round, the Fed’s total purchases will be split between $600 billion of mortgage-backed securities and $540 billion of Treasuries, according to the median estimates of economists in the survey.

Asked what would prompt the Fed to halt its bond buying, 63% of economists said the central bank will act in response to substantial improvement in the labor market.

Only 13% said the Fed will end its purchases because of accelerating inflation or a rise in inflation expectations.

Inflation for the 12 months ending in November was 1.4%, according to the Fed’s preferred gauge. That’s below the central bank’s longer-run target of 2%. Investors expect inflation of 2.24% over the next five years, compared with 2.1% when the FOMC met Dec. 11-12, as measured by the spread between Treasury Inflation Protected Securities and nominal bonds.

Participants Differed

At the FOMC’s meeting last month, participants differed over how long the bond purchases should last. Fed officials who provided estimates were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date, according to minutes of the gathering.

A number of policy makers are concerned the size of the Fed’s holdings “could complicate the committee’s efforts to eventually withdraw monetary policy accommodation,” according to the minutes.

The percentage of economists who consider monetary policy “somewhat too easy” rose to 40% compared with 27% in a survey prior to the FOMC’s Dec. 11-12 meeting.

Boston Fed President Eric Rosengren, an FOMC voter this year, sees Fed accommodation working, citing recent improvement in the housing market and in auto sales.

“The most interest-sensitive sectors have been responding to the monetary stimulus from the Fed, and this stimulus has provided a major source of strength for the economy last year,” Rosengren said in a Jan. 15 speech in Providence, Rhode Island. “And it is likely to be a source of support in 2013.”

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