US Federal Reserve Could Taper QE3 in $10bn Steps Over Seven Meetings

The US Federal Reserve could unwind its bond purchases in $10bn tranches over the next seven meetings before terminating the program in December 2014.

The median forecast in a Bloomberg poll of 41 economists matched the $10bn (£6.1bn, €7.3bn) reduction announced on 18 December.

On 18 December, the Federal Open Market Committee (FOMC), the Fed's governing body, said in a statement it would trim buying "in further measured steps at future meetings" if the US economy improved as forecast.

The Fed could taper its buying by about $10bn per gathering, Fed chief Ben Bernanke said at a press conference in Washington the same day.

Such predictable installments would extend Bernanke's push toward greater transparency at the world's most powerful central bank, said Dana Saporta, an economist at Credit Suisse Group AG in New York.

"Doing this would avoid the drama of having to come to a consensus at each meeting," Saporta said.

"It may have been difficult enough to agree on the timing, size and composition of the first taper, so maybe no one has the appetite to do that on an ongoing basis," Saporta told the news agency.

Barclays Capital said in a note to clients: "Given the Fed's modest tapering and the enhanced forward guidance, our economists have revised their expected path for the Fed's balance sheet."

"They now expect the FOMC to reduce the pace of its purchases by $10bn at each upcoming meeting, evenly applied to Treasuries and agency MBS, and to conclude its asset purchase program at the October 2014 meeting (the last move in October would be a $15bn reduction)."

"They maintain the view that the Fed will not raise rates until mid-2015, a bit earlier than the Fed's forecast would suggest, based on their view that the unemployment rate will continue to fall faster than policymakers expect," the British bank added.

Barclays Capital said in a separate note: "For the December US employment report, scheduled for release on Friday, January 10, we look for nonfarm payrolls to rise by 175k and for private payrolls to rise by 175k."

"This would represent a modest softening from the three-month average pace of payroll gains of 193k through November and we point to the back-up in initial jobless claims as one explanatory factor."

"We look for the unemployment rate to hold steady at 7.0%, for average weekly hours to hold steady at 34.5, and for average hourly earnings to rise 0.2%. This would leave average hourly earnings up 1.9% y/y in 2013," the bank added.

US Recovery

The Fed's balance sheet rose to a record $4.01tr as of 18 December, up from $2.82tr when it began the third round of purchases, referred to as QE3.

The balance sheet is expected to swell to about $4.4tr when the stimulus program ends, according to median estimates in the Bloomberg survey.

Unemployment in the world's leading economy dropped to a five-year low of 7% in November after companies created 203,000 jobs.

Inflation measured by the personal consumption expenditures index was 0.7% in October and has remained below the Fed's 2% target for nearly 18 months.

The FOMC rolled out QE3 a little over a year ago to counter the impact of the global financial crisis and boost the American economy.