Three Fed regional bank presidents, who spoke today from a monetary policy conference in Jackson Hole, Wyoming, differed over the timing for reducing the bond buying, with one backing a tapering next month if the economy remains strong and two others saying policy makers should take time to assess economic data.
"We can take our time" on slowing purchases, St. Louis Fed President James Bullard said. San Francisco's John Williams told CNBC he wants to "taper our purchases later this year" if the economy doesn't flag, while Atlanta's Dennis Lockhart said he "would be supportive" of slowing purchases next month if the expansion holds up.
Data today from the Commerce Department showed purchases of new U.S. homes plunged in July by the most in more than three years and previous months were revised down, a sign that growth in the industry may be taking a pause as mortgage rates rise. Yields on 10-year Treasury notes have risen toward a two-year high.
"Home sales are a big part of this recovery story in the U.S.," Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $180 billion, said in an interview. "The fact that there are rising interest rates looks like it may be starting to bite into new home sales. That's probably going to cause the economy be a little softer in the second half."
David Fuller's view A technical rally for stock markets commenced this week in response to short-term oversold conditions following selling pressure in previous upside leaders, mostly since May. You can see this on these two daily USD-denominated charts for the DJ World Stock Index, and also Ex USA. Closes above the early to mid-August highs are required to indicate that demand for global equities is still generally firm. This is possible, given low short-term interest rates and all the quantitative easing ( QE). However, I would not bet on it, given factors such as the increase in valuations since last November and sharp rallies in long-dated government bond yields since early May.
Also, with mixed economic data from the US economy falling short of Mr Bernanke's targets for commencing tapering, there are hopes that he will not reduce the Fed's $85bn stimulus in September. Therefore, if he does commence tapering next month, it will almost certainly be due to political pressures, certainly not from the White House but mainly from other economists, not least other members of the Federal Reserve. It could also roil stock markets.
(Please note - This is discussed in more detail at the beginning of Friday's big picture Audio.)
Meanwhile, Europe and the IMF worry. Here is a short item by Andrew Trotman for The Telegraph (UK) on concern over QE tapering: IMF Chief Christine Lagarde Warns of QE Tapering Risks:
Aug. 23 (Telegraph) -- IMF chief Christine Lagarde has said that central bank stimulus is still needed for the global economy, and warned of unknown risks as it is scaled back.
"The day will come when this period of exceptionally loose monetary policy... must end," she said in a speech to a global gathering of central bankers hosted by the US Federal Reserve in Jackson Hole, Wyoming, on Friday.
"We need to plan for that day, especially since we do not know exactly when it comes," said Ms Lagarde, the managing director of the International Monetary Fund.
"Just as with entry, exit will take us into uncharted territory."
Speaking as the Fed's plans for slowing its $85bn-a-month bond-buying program have shaken emerging economy markets, Ms Lagarde said such "unconventional monetary policy" (UMP) approaches remained important.
"Let me say it up front: I do not suggest a rush to exit.
UMP is still needed in all places it is being used, albeit longer for some than for others."
She said specifically that both Europe and Japan still have much to gain from such programmes, which mostly aim to enhance growth by pressing interest rates lower.
But she said the IMF and policy makers should be thinking about the ramifications of reeling in easy-money programmes.
"That includes the implications for global economic and financial stability: the whole system, not just one part of it."