Bernanke seen slowing QE to $65 billion in September in poll

Federal Reserve Chairman Ben Bernanke (Source: Bloomberg) Federal Reserve Chairman Ben Bernanke (Source: Bloomberg)

Federal Reserve Chairman Ben S. Bernanke in September will trim the Fed’s monthly bond buying to $65 billion from the current pace of $85 billion, according to a growing number of economists surveyed by Bloomberg News.

Half of economists held that view in the July 18-22 survey, up from 44% in last month’s poll. Even as expectations of a September taper rose, 10-year Treasury yields continued to fall last week from an almost two-year high after Bernanke said reducing bond-buying wouldn’t constitute policy-tightening.

“The markets have adjusted to the new information that the Fed is likely to reduce purchases over the near term, and they’ve come to terms with it,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. “Investors believe it won’t be a strong negative for the markets or the economy.”

None of the 54 economists surveyed expects the Federal Open Market Committee to begin paring its purchases at its meeting scheduled for July 30-31. In its first trim, the FOMC will probably cut monthly bond buying by $20 billion, with purchases divided between $35 billion in Treasuries and $30 billion in mortgage-backed securities, according to the median estimate of economists.

The central bank will probably halt the asset purchases in the second quarter of next year, according to half of the economists. Twenty-four% forecast the FOMC will end so- called quantitative easing in the third quarter of 2014.

Third Round

The Fed will buy a total $1.32 trillion in bonds at the completion of its third round of bond buying, according to the median estimate. The FOMC began with $40 billion in monthly mortgage bond purchases in September and added $45 billion in monthly Treasury purchases in December.

The yield on the 10-year Treasury note soared to an almost two-year high of 2.75% on July 8 from 2.19% on June 18, the day before Bernanke said the Fed may consider reducing bond purchases this year if the economy performs in line with the central bank’s forecast.

The yield fell 0.04 percentage point to 2.49% on July 17, when Bernanke told a congressional panel that he hasn’t put bond purchases “on a preset course” but will adjust them based on economic data. The yield rose 0.03 percentage point to 2.51% at 9:25 a.m. in New York.

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