The Fed planning QE exit road map

Since the Fed announced in September last year to expand the size of the bond-buying program, the U.S. stock market sharply higher, the major indexes repeatedly hit a new record high.

However, one of the rumors on Twitter investors awakened: the pace of the Fed's exit is getting closer, it is time to prepare for.

Non-groundless

9 pm local time, a Twitter news shocked the entire market, the news that the Fed News Service, "said Jon Hilsenrath will shortly issue a Fed will purchase earlier than expected slowdown in the scale of debt reported.

Jon Hilsenrath has been on Wall Street that Fed Chairman Ben Bernanke's mouthpiece, the news quickly spread in the market after the zerohedge many influential website broadcast.

Subsequently, the Fed planned easing "exit road map" rumors everywhere, then decline in the price of U.S. Treasury bonds, the dollar along with upside, the U.S. stock market also ended the day after five consecutive trading days of rising prices.

10 days after the closing of the stock, Jon Hilsenrath published an article entitled "Fed stimulus formulate an exit plan.

The article pointed out that Fed officials are already planning a strategy to exit the bond-buying program, this strategy is still under discussion Fed has sufficient flexibility, which is determined by the market in accordance with the clear Prior experience is expected to step. Fed plans a phased reduction of the scale of the debt purchase, change the number of purchase bonds according to their progress in the employment and inflation, but when the plan is still controversial.

In addition, Fed officials want to be able to clear this strategy and let the market do not overreact.

Or three-step

Currently, the Fed is running the fourth round of quantitative easing monetary policy, a monthly purchase plan amounted to $ 85 billion debt. The Fed had already released to the market signals, ready to speed up or slow down the speed of bond purchases in accordance with the progress of the economic outlook. Jon Hilsenrath stressed that most of the recent Fed minutes show the Fed there is a greater flexibility in the management of the debt purchase plan.

Wall Street is widely expected, the Fed's quantitative easing policy will continue into 2014, but is likely to start from the fourth quarter of this year to reduce the scale of the debt purchase and take a three-step strategy to exit quantitative easing. JP Morgan chief economist Ferrari, the the Fed first step might share the scale of debt reduction to a month 50000000000-60000000000 U.S. dollars, the second step is then reduced to $ 30 billion, and then stop the debt purchase. However, investors still worried about the first time the scale of debt reduction of share will be misinterpreted as the tightening cycle, and then cause the rapid rise in market interest rates.

Wall Street Journal survey of private sector economists showed that 55% of respondents expect the Fed began to tighten in the third or fourth quarter of this year to purchase debt scale, 45% of respondents expected to wait until next year or was later to have the action, no respondents believe that the the next Fed will expand the scale of the debt purchase.

Bloomberg research shows that in the fourth quarter of this year, the Fed will purchase monthly scale of debt is reduced from $ 85 billion to $ 50 billion. According to CNBC research shows that Wall Street expects the Fed will start in February 2014 to reduce the scale of the debt purchase a complete end to the wide amount of time expected after July 2014, the first rate hike will occur in the second quarter of 2015.

Foam manufacturer?

This week, five local Fed President Fisher and Plosser and Fed Governor Raskin will deliver a speech, Bernanke also on long-term economic outlook speech, investors can get more information about the Fed planning to exit bonds purchase program message. In addition, the Federal Reserve held a meeting on interest rates in June, July and September, respectively, market participants expect Bernanke will have the opportunity to explain its exit plan in a news conference in June and September.

Fed officials support debt purchase plan has also hinted that the economic outlook is more optimistic, while willing to consider began to withdraw from the debt purchase plan.



However, the recent global tide set off a new round of interest rate cuts in multinational expand easing when the Fed is why at this time "Leak"?

Bank of Nova Scotia, Canada, New Zealand and the South Korean central bank intervention in currency markets last week, trying to suppress the currency appreciation, these actions is that the outside world will never tolerate the impact of the Fed quantitative easing quantitative easing protest. If the Fed can not be quickly inhibit the scale of quantitative easing, other countries and the central bank will retaliate and would be willing to initiate a currency war. For emerging markets, the Fed exit quantitative easing could lead to a mass exodus of funds, but the return on investment in emerging markets is significantly higher than the U.S. and European markets. From the point of view of return on capital investment, the global capital flows is still not a great change.

Last week, the Dow and S & P 500 index hit a closing high, in pursuit of higher returns, many investors to buy riskier assets. Analysts said that for now, purchase debt reduction is only symbolic blow to the enthusiasm of the market, but investors will start to be careful to look again at the downside risk of this type of asset, the Fed will derive its own manufacturing market bubble answer.