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20 Jun 2013
Flash: Pace of Fed tapering a point of contention – Deutsche Bank
FXstreet.com (New York) - According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “If the Fed’s new revised economic forecasts are correct then over the medium-term there is not much to worry about them being more hawkish than expected last night.”
However, will their expectation that tapering will start before the end of 2013 and bond purchases be totally removed by mid-2014 actually cause a global risk sell-off that means these forecasts end up being too optimistic? “If so, then the pace of tapering will end up being slower than the scenario painted last night by Bernanke.” the analysts warn.
But for now there’s little doubt that this was a hawkish FOMC as the Fed showed little desire to squeeze the tapering genie back into the bottle. Investors have been given warning that liquidity and carry sensitive trades are dangerous if the summer sees stronger data. The Fed has just made the market even more sensitive to data than it was previously and the volatility surrounding each key data print will likely multiply. We now think this will be a difficult few weeks for risk, especially if the data is on the stronger side.
However, will their expectation that tapering will start before the end of 2013 and bond purchases be totally removed by mid-2014 actually cause a global risk sell-off that means these forecasts end up being too optimistic? “If so, then the pace of tapering will end up being slower than the scenario painted last night by Bernanke.” the analysts warn.
But for now there’s little doubt that this was a hawkish FOMC as the Fed showed little desire to squeeze the tapering genie back into the bottle. Investors have been given warning that liquidity and carry sensitive trades are dangerous if the summer sees stronger data. The Fed has just made the market even more sensitive to data than it was previously and the volatility surrounding each key data print will likely multiply. We now think this will be a difficult few weeks for risk, especially if the data is on the stronger side.