MercoPress. South Atlantic News Agency

Fed expected to trim bond buying to 65bn in September, says Bloomberg survey

“Appropriate to begin to moderate the monthly pace of purchases later this year” Bernanke told the US Congress

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 dollars, 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% June’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.

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 percent forecast the FOMC will end so-called quantitative easing in the third quarter of 2014.

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.

“It would be appropriate to begin to moderate the monthly pace of purchases later this year” if economic data match Fed forecasts, Bernanke told the US Congress. “If the subsequent data continued to confirm this pattern of ongoing economic improvement and normalizing inflation, we expected to continue to reduce the pace of purchases in measured steps through the first half of next year, ending them around midyear.”

The Fed chairman plans to hold his next press conference after the FOMC Sept. 17-18 meeting, when Fed officials will next update their forecasts for the growth, unemployment and inflation.

Fed Governor Jeremy Stein, in a speech last month, identified the September meeting as a possible time for altering the pace of asset purchases.

The FOMC should “be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program,” Stein said on June 28 in New York. The Fed should “not be unduly influenced by whatever data releases arrive in the few weeks before the meeting -- as salient as these releases may appear to be to market participants.”