27 Jun 2013
Flash: Current environment risky for Fed-tapering – Deutsche Bank
FXstreet.com (New York) - With yesterday's GDP revisions, the YoY nominal US GDP edged down to 3.3% in Q1, following Q4's 3.5% - these are the lowest readings since Q1 2010, notes Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank.
According to the team, “It would take a very confident and brave Fed to remove stimulus in such an environment in our opinion. That's not to say they won't but given how unpredictable the data has been in this recovery (mostly all to the downside vs. forecasts), can they really be sure that nominal activity is going to bounce back as expected in 2014.”
If they were removing stimulus because of a desire to reduce the risk of asset bubbles then we'd have sympathy but we would argue that maybe the time to do this was around 15 years ago. To start conducting policy in this manner in 2013 after years of rolling bubbles and an extremely high global debt burden is quite dangerous. So it's still a personal view that tapering will be delayed and that there might be a policy error if they plough on and continue in the manner laid out by the Fed last week.
According to the team, “It would take a very confident and brave Fed to remove stimulus in such an environment in our opinion. That's not to say they won't but given how unpredictable the data has been in this recovery (mostly all to the downside vs. forecasts), can they really be sure that nominal activity is going to bounce back as expected in 2014.”
If they were removing stimulus because of a desire to reduce the risk of asset bubbles then we'd have sympathy but we would argue that maybe the time to do this was around 15 years ago. To start conducting policy in this manner in 2013 after years of rolling bubbles and an extremely high global debt burden is quite dangerous. So it's still a personal view that tapering will be delayed and that there might be a policy error if they plough on and continue in the manner laid out by the Fed last week.