Tags: Westpac | Contrarian | Fed | Taper

Westpac's Contrarian View: No Fed Taper in 2014

By    |   Sunday, 15 Dec 2013 11:42 AM

In a forecast contradicting conventional wisdom, Australia's Westpac Bank predicts the Federal Reserve won't taper its stimulus next year.

"This view is driven by our sense that both employment data and inflation measures simply do not justify Fed tapering any time soon," Rob Rennie, Westpac's global head of FX strategy in Sydney, told CNBC in emailed comments earlier this month.

"If we are wrong and the Fed does taper, it will be a 'start-stop' affair and it will be at least partially replaced by other forms of monetary stimulus," he said. "By 2015, we do see the U.S. economy getting closer to escape velocity and taper happening then."

Editor’s Note: 75% of Seniors Make This $152,000 Social Security Mistake (See Easy Fix)

Fed officials say their decision will be driven by economic data, not calendar dates. They want to see the recovery gain traction and unemployment to continue falling before curtailing the stimulus. The U.S. central bank has a two-day policy meeting this week, and the most economists predict the Fed, now purchasing $85 billion of mortgage and Treasury bonds a month in what's called quantitative easing, will start shrinking its monthly purchases sometime early next year.

Rennie bases his contrarian opinion partly on a look inside the U.S. employment numbers. "While headline jobs data has improved, any look at the detail shows clear weakness," Rennie told CNBC.

For instance, the participation rate, or the portion of adults working or actively seeking work, is particularly disconcerting. Many young adults who returned to school when jobs were scarce have yet to return to the workforce.

"Absent a material change in employment opportunities," Rennie said, "this trend will create a persistent drag on growth, most notably through the housing market and consumption associated with household formation."

Martin Lakos, division director at Macquarie Private Wealth in Sydney, said Westpac's thinking is reasonable.

"To some extent, they do have a point," he told CNBC. "Clearly the Fed has made it very clear that they've got to see sustainable economic data before they're really going to act."

Some economists think the Fed may start tapering this month. “The odds are that they basically almost pre-announce at the December meeting and say if numbers continue to be strong a tapering will start very soon," Jim O’Sullivan, chief U.S. economist at High Frequency Economics, told MarketWatch.

"At a minimum, they will strongly hint that a taper will be announced at the January 2014 meeting," agreed John Lonski, chief capital markets economist at Moody’s Analytics.

Editor’s Note: 75% of Seniors Make This $152,000 Social Security Mistake (See Easy Fix)

Related Articles:

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
StreetTalk
In a forecast contradicting conventional wisdom, Australia's Westpac Bank predicts the Federal Reserve won't taper its stimulus next year.
Westpac,Contrarian,Fed,Taper
454
2013-42-15
Sunday, 15 Dec 2013 11:42 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved