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Investors Forecast Fed QE Taper in March or Later in Global Poll

U.S. Federal Reserve Building
Only one in 20 said the U.S. central bank will begin to reduce its purchases at its Dec. 17-18 meeting, according to the poll yesterday of investors, traders and analysts who are Bloomberg subscribers. Photographer: Andrew Harrer/Bloomberg

Four of five investors expect the Federal Reserve to delay a decision to begin reducing its bond buying until March 2014 or later, with just 5 percent looking for a move next month, according to the latest Bloomberg Global Poll.

Those forecasting a cutback in March or later are split evenly between those who expect a move that month and those who see it afterward. Only one in 20 said the central bank will begin to reduce its purchases at its Dec. 17-18 meeting, according to the poll yesterday of investors, traders and analysts who are Bloomberg subscribers.

Investors aren’t giving the possibility of a December taper enough weight, said Roberto Perli, a former central bank official who is now a partner at Cornerstone Macro LP in Washington. He put the odds of a move next month at “somewhere around 35 percent” and said the probability would rise further if the jobs market shows further “strong” gains this month. Payrolls rose 204,000 in October.

Janet Yellen, nominated to be next chairman of the Fed, signaled last week that she will carry on with the central bank’s unprecedented stimulus until she sees an improvement in an economy that’s operating well below potential.

She also told the Senate Banking Committee on Nov. 14 that Fed policy makers will take stock of the asset purchase program at every meeting.

“While there is no set time that we will decide to reduce the pace of our purchases, at each meeting we’re attempting to assess whether or not” to do that, said Yellen, who currently is vice chairman of the central bank.

$85 Billion

The Fed is buying $85 billion worth of bonds per month and has said it will hold short-term rates near zero at least as long as unemployment is above 6.5 percent and the forecast for inflation is below 2.5 percent. The jobless rate in October was 7.3 percent, while the inflation measure the Fed uses was at a year-over-year rate of 0.9 percent in September.

More than half of investors expect the Fed to begin raising interest rates in 2015 -- split roughly evenly between those anticipating a move in the first half of the year and those forecasting an increase in the latter six months, according to the poll. Fewer than one in five see the central bank boosting rates next year, while slightly more than a quarter predict a decision will be delayed until 2016 or later.

Bernanke said yesterday in a speech in Washington that the Fed’s interest rate target “is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after” the jobless rate falls below the 6.5 percent threshold.

BoE Quicker

The Bank of England will be quicker off the mark than the Fed in raising interest rates, according to the Bloomberg Global Poll. Almost a quarter of investors forecast that the BOE will raise rates next year, compared with 17 percent who said the same of the Fed. The result is also higher than September, when less than one in five saw the BOE raising rates in 2014. Another 44 percent in yesterday’s poll expect the first BOE rate rise in 2015.

Governor Mark Carney and his colleagues voted unanimously to keep policy unchanged this month and said a record-low interest rate may be needed even after unemployment falls to the 7 percent threshold set under forward guidance. “There were uncertainties over the durability of the recovery,” the Monetary Policy Committee said in the minutes of its Nov. 6-7 meeting, published in London today.

Slower Tightening

The European Central Bank and the Bank of Japan will be slower to tighten credit, according to the poll. A plurality of 42 percent don’t expect the first ECB rate increase until 2016 or later, while a majority of 55 percent say the same of the BOJ.

More than two-thirds of investors said they anticipate that Yellen will follow a monetary policy path similar to that of Bernanke, the poll found. That’s up from 47 percent in the last survey in September, before Yellen’s appearance before the Senate Banking Committee last week.

“If one only read the transcript but didn’t watch the hearing, one would be hard-pressed to distinguish Yellen from Bernanke,” Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York, said in a Nov. 14 note to clients after the vice chairman’s testimony.

One in five of those polled said they expect Yellen to pursue an easier monetary policy than Bernanke, while fewer than one in 10 said she’ll take a tighter stance. Bernanke’s term as Fed chairman expires on Jan. 31.

International investors give Yellen high marks: More than two-thirds rated her favorably in the poll, up from three in five in the September survey. Her ratings are in line with those of European Central Bank President Mario Draghi and slightly better than Carney’s.

The poll of 750 Bloomberg subscribers was conducted by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.6 percentage points.

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