Federal Reserve Could Start Tapering QE As Early As Next Month

Federal Reserve Could Start Tapering QE As Early As Next Month
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Chicago Federal Reserve Bank chief Charles Evans told reporters on Tuesday that the central bank could start trimming its massive stimulus program as early as next month, depending on the economic data. Evans is one of the most dovish policymakers at the Federal Reserve. He endorsed chairman Ben Bernanke’s view, reports MarketWatch senior reporter Greg Robb. Bernanke said on June 19 that the Fed could start tapering its $85 billion asset purchase program by the end of this year, and could wind it down completely in the middle of 2014.

Federal Reserve Could Start Tapering QE As Early As Next Month

Evans third Federal Reserve official to hint September tapering

Economists polled by Bloomberg suggest that the Fed is likely to make its tapering decision at the September 17-18 meeting. Charles Evans said the Federal Reserve is quite likely to trim the bond buying rate later this year. And he didn’t rule out the possibility of a cutback starting next month. He is the third member of the Federal Reserve to indicate that a September tapering is on the cards.

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Earlier, Dallas Fed president Richard Fisher and Atlanta Fed chief Dennis Lockhart said that they would support cutting back the stimulus program starting next month. Charles Evans, who is one of the voting policymakers this year, reiterated that the Federal Reserve will maintain the interest rate near zero until the jobless rate declines to less than 6.5%, which analysts expect to happen in 2015.

However, Evans tried to soothe investor concerns by stating that the central bank could keep interest rates near zero even if the unemployment rate falls below 6.5% target, if inflation remains below 2% threshold. Evans estimates that the third round of quantitative easing would total $1.2 trillion by the time it ends completely.

U.S. economy expected to grow at 3% in 2014

Charles Evans expects U.S. economy to expand at 2.5% in the second half of this year after a sluggish first half. The Federal Reserve estimates that the economy will grow at more than 3% in 2014. That kind of growth rate should add 175,000 to 200,000 new jobs a month, bringing down the jobless rate to 7% by the middle of 2014.

When and by how much the central bank will cut its asset purchase program has been a cause of concern on the Wall Street. U.S. stock indices fell after Evans’ comments. The Dow Jones Industrial Average went down 0.58% to 15,521.95, the S&P 500 Index sank 0.54% to 1,697.85, while Nasdaq plummeted 0.74% to 3,665.50.

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