Tags: pimco | federal reserve | taper | stimulus

Pimco's Bill Gross: It's 'Obvious' Fed 'Wants Out' of QE

By    |   Wednesday, 29 January 2014 06:53 PM

The Federal Reserve's decision Wednesday to taper its bond purchases for a second time shows the central bank is keeping a steady pace to exit its quantitative easing (QE), says Bill Gross, chief investment officer at Pimco.

"It's been obvious for a few months now that the Fed wants out of the QE, and that means the taper, and it means a continuous $10 billion reduction as long as the global markets hold together and they have, despite Turkey," he told CNBC.

The Fed has tapered by $10 billion at each of its last two meetings, leaving its monthly bond buying at $65 billion. "What we're seeing is an end of QE in October [or] early November," Gross said.

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After that, the Fed will focus on the federal funds rate target, now at a record low of zero to 0.25 percent, Gross says.

The Fed said in its statement Wednesday that it's unlikely to raise the target until "well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation" remains below the Fed's 2 percent target.

The jobless rate totaled 6.7 percent in December.

Over the next 12 months, inflation numbers will be more important for the Fed than unemployment data, Gross says.

Others see a steady wind-down of QE too. "The Fed is staying the course," Guy Berger, an economist at RBS Securities, told Bloomberg.

"The hurdle for backing away from the implicit stair-step taper that they’ve suggested, which we view as roughly $10 billion per month, and winding down the program in September, is pretty high."

Many others agreed with Gross and Berger.

"Ultimately, the Fed sort of had no choice but to reduce purchases (Wednesday)," Dan Greenhaus, chief strategist at BTIG brokerage, told the Associated Press. "If they had paused, they risked sending a signal to markets that they lacked conviction."

The central bank launched its current round of bond purchases in September 2012, its third such effort since the financial crisis in late 2008.

"The Fed's action represents a continuation of its resolute determination to end (bond purchases) during 2014," Daniel Alpert, managing partner at Westwood Capital in New York, told Reuters. "The policy has hit its 'sell by' date."

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The Federal Reserve's decision Wednesday to taper its bond purchases for a second time shows the central bank is keeping a steady pace to exit its quantitative easing (QE), says Bill Gross, chief investment officer at Pimco.
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2014-53-29
Wednesday, 29 January 2014 06:53 PM
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