Sunday

October FOMC Expectations: No Tapering QE Until March! Government Shutdown Slowed Growth



 A survey revealed that economists believe the Fed will not taper QE in October and instead start to taper in March. I wonder what they'll be saying in March!! The effect on gold and silver should be quite interesting.

The Federal Reserve will delay the first reduction in its bond purchases until March after the government shutdown slowed fourth-quarter growth and interrupted the flow of data, economists said. Policy makers will pare the monthly pace of asset buying to $70 billion from $85 billion at their March 18-19 meeting, according to the median of 40 responses in a Bloomberg News survey of economists. The 16-day budget impasse in Washington reduced growth by 0.3 percentage point this quarter, economists said in the survey.

Forecasters, surprised when the Fed opted against tapering at its Sept. 17-18 meeting, pushed out their expectations after the shutdown furloughed as many as 800,000 federal workers. The closing also disrupted collection and publication of economic reports the Fed says it needs to determine whether the expansion is strong enough to handle less monetary stimulus. "It's going to be harder to extract the signal from the data, and the Fed's policies are tied to the data," said Laura Rosner, a U.S. economist at BNP Paribas SA in New York and a former researcher at the Federal Reserve Bank of New York who expects the first tapering in March. "They're waiting for more confirmation the economy is moving in the direction of their outlook, and if we don't have data or it's inconclusive, then the Fed isn't going to feel confident enough in the outlook."
The U.S. central bank will reduce monthly purchases to a $25 billion pace by July and end the program at the October 2014 meeting, according to the survey conducted this week. Chairman Ben S. Bernanke's second term ends Jan. 31, and President Barack Obama has nominated Vice Chairman Janet Yellen to succeed him.

Growth remained "modest to moderate" as consumer spending maintained gains and business investment grew, the Fed said. Employment growth "remained modest" in September, and price and wage pressures "were again limited."
The Fed is pressing on with its third round of quantitative easing begun in September 2012, and officials pledged to continue buying until achieving "substantial improvement" in the labor market. The purchases have swollen the Fed's balance sheet to a record $3.81 trillion.
Americans in October were the most pessimistic about the nation's economic prospects in almost two years, as concern mounted that the political gridlock in Washington would hurt the expansion, according to the Bloomberg Consumer Comfort Index of expectations.
"A lot of the impact really depends on the behavior of consumers during that time," said Drew Matus, an economist at UBS AG in Stamford, Connecticut, and a former markets analyst at the New York Fed, who expects the central bank to begin reducing purchases in January. "The fact that most government workers knew that they were going to get their money is probably one of the reasons if you went golfing in the last couple weeks you probably had trouble getting tee times." Source: Bloomberg.com/news/2013-10-18/fed-qe-tap
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