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18 Jul 2013
Flash: Fed's unresolved conflicts - Nomura
FXstreet.com (Barcelona) - While Bernanke's testimony from Wednesday's seeks to reconcile many of the recent inconsistencies in Fed communication, "it does not resolve all of them" notes Nomura Economists.
The first point Economists at Nomura stress is a tension in his remarks on the criteria for slowing the pace of asset purchases: "In some places he speaks about 'cumulative progress towards our objectives,' while in other places he talks about the motivation of asset purchases being to 'increase the near-term momentum of the economy.'"
According to Nomura, "these two standards imply different things about what is needed to reduce the pace of asset purchases." While Nomura believes the emphasis was "more on 'take-off' and less on "cumulative progress', the Chairman was not clear on how these two factors would be weighed in making a decision to reduce the pace of asset purchases" Nomura Economists said.
Nomura also observed a potential inconsistency "between the argument that any reduction in the pace of asset purchases is 'data dependent' and the argument that decisions about asset purchases are independent from decisions about interest rates." The Economists at Nomura think that "The way the Chairman explained the different purposes of asset purchases and forward guidance to some degree mitigated this seeming inconsistency." However, the Bank's Economists remain confident that "if the labor market improves it will be hard to argue that we are not closer to both tapering and the first hike in interest rates."
The first point Economists at Nomura stress is a tension in his remarks on the criteria for slowing the pace of asset purchases: "In some places he speaks about 'cumulative progress towards our objectives,' while in other places he talks about the motivation of asset purchases being to 'increase the near-term momentum of the economy.'"
According to Nomura, "these two standards imply different things about what is needed to reduce the pace of asset purchases." While Nomura believes the emphasis was "more on 'take-off' and less on "cumulative progress', the Chairman was not clear on how these two factors would be weighed in making a decision to reduce the pace of asset purchases" Nomura Economists said.
Nomura also observed a potential inconsistency "between the argument that any reduction in the pace of asset purchases is 'data dependent' and the argument that decisions about asset purchases are independent from decisions about interest rates." The Economists at Nomura think that "The way the Chairman explained the different purposes of asset purchases and forward guidance to some degree mitigated this seeming inconsistency." However, the Bank's Economists remain confident that "if the labor market improves it will be hard to argue that we are not closer to both tapering and the first hike in interest rates."