QE tapering may be delayed beyond March 2014?
Moneylife Digital Team 18 November 2013

The US quantitative easing (QE) programme may continue in 2013 it is likely that any tapering may be delayed much beyond March 2014, says State Bank of India (SBI) in a research report.


"The dynamics of US economic recovery will require that housing prices recover appreciably which may feedback into consumption and pull the economy out of recession. However, likelihood of the same looks grim, at this point of time. We thus continue to maintain that, time may not be ripe for a QE tapering in 2013," the report said.


It said, although the non-farm payroll in the US may have witnessed upward revisions in August and September 2013, overall the unemployment situation is still not responding adequately to  Fed stimulus. The reasons possibly are firstly, the US labour markets have created part-time jobs and that to involuntary part-time jobs have been very high suggesting that employers do not want to hire full time workers. Secondly, small enterprises which have contributed to employment growth in the past, between 2007 and 2012, their share of total net job losses was nearly double their 30% share of total  employment. The spike in October employment numbers is also seasonal, as more jobs have been created in retail trade, a trend more likely prior to festive season in West. Finally, the labour force participation rate is declining in the US because of the aging population, pushing down the unemployment rate in the process, the report said.

SBI said, with the new Fed chief floating the theory of “Optimum Control”, it also believe easy monetary policy will continue beyond 2015. It said, "Given that  post QE tapering the US economy cannot handle a 10-year yield in excess of 3%, the Fed is floating its new approach. The new approach will entail the Fed keeping its overnight rate near zero into 2017 in order the get the economy moving. Such a commitment for keeping overnight interest rates longer should clearly anchor long-term bond yields and facilitate a taper of QE as and when it happens. All in all, QE tapering in 2013 is ruled out and is hugely likely it may be delayed much beyond March 2014, the market consensus."

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