Federal Reserve Chairman Ben S. Bernanke next month will probably reduce the central bank's $85 billion in monthly bond purchases, according to 65 percent of economists surveyed by Bloomberg.

The Federal Open Market Committee's first step may be small, with monthly purchases tapered by $10 billion to a $75 billion pace, according to the median estimate in a survey of 48 economists conducted Aug. 9-13. The Fed will end the buying by mid-2014, they said. In a survey last month, half of economists predicted a Fed reduction in bond buying at the next scheduled FOMC meeting Sept. 17-18.

"While the data hasn't been great, it's been good enough to support the notion of tapering," said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, and a former Richmond Fed economist. "They want to wind this down in an orderly way and get it done in a reasonable period of time."

Bernanke and his policy-making colleagues are contemplating how to finish a third round of so-called quantitative easing that has swelled the Fed's balance sheet to a record $3.59 trillion. The unprecedented bond buying is aimed at combating unemployment and bolstering an economy that expanded by only 1.4 percent in the 12 months through June.

The unemployment rate has fallen to 7.4 percent from an 8.1 percent rate reported the week before the Fed started the current bond-buying program in September. The central bank will learn more about employment on Sept. 6, when the Labor Department issues a jobs report for the month of August. In July, the economy added 162,000 jobs and the unemployment rate dropped to 7.4 percent from 7.6 percent

David Fuller's view Wall Street firmed on Kenneth Rogoff's call for reflation on Monday and has softened with this latest report. This is consistent with a market that has had a good bull run since March 2009 (S&P 500 - weekly & daily) , but is somewhat overextended relative to its 200-day moving average and is no longer cheap.

Nevertheless, tapering quantitative easing (QE) is not the same as monetary tightening, as short-term interest rates will remain low. However, it will create some uncertainly and nervousness because investors will realise that the Fed is less likely to shore up Wall Street with a wall of money.

Therefore we are likely to see a ranging environment for US share indices and many of the other stock market leaders since 2009. Previous laggards such as European Indices (see below) and resources sectors (weekly & daily) are likely to do somewhat better, as they are generally on lower valuations.

Monetary risk is more likely to come from long-dated government bonds (weekly & daily), which have only begun to recover from their historically low yields.