The US Federal Reserve will delay the first reduction in its bond purchases until March after the government shutdown slowed fourth-quarter growth and interrupted the flow of data, economists said.
Policymakers will pare the monthly pace of asset buying to US$70 billion from US$85 billion at their meeting on March 18 and March 19, according to the median of 40 responses in a Bloomberg News survey of economists.
The 16-day budget impasse in Washington reduced growth by 0.3 percentage point this quarter, economists said in the survey.
Forecasters, surprised when the Fed opted against tapering at its meeting on Sept. 17 and Sept. 18, pushed out their expectations after the shutdown furloughed as many as 800,000 federal workers.
The closing also disrupted collection and publication of economic reports the Fed says it needs to determine whether the expansion is strong enough to handle less monetary stimulus.
“It’s going to be harder to extract the signal from the data, and the Fed’s policies are tied to the data,” said Laura Rosner, a US economist at BNP Paribas SA in New York and a former researcher at the Federal Reserve Bank of New York who expects the first tapering in March.
“They’re waiting for more confirmation the economy is moving in the direction of their outlook, and if we don’t have data or it’s inconclusive, then the Fed isn’t going to feel confident enough in the outlook,” Rosner added.
The US central bank will reduce monthly purchases to a US$25 billion pace by July next year and end the program at the meeting in October next year, according to the survey conducted this week.
Fed Chairman Ben Bernanke’s second term ends Jan. 31 next year and US President Barack Obama has nominated Fed Vice Chairman Janet Yellen to succeed him.
Economists had expected the central bank to reduce purchases to US$80 billion last month, according to a Bloomberg survey.
“Conditions in the job market today are still far from what all of us would like to see,” Bernanke said at a press conference following last month’s meeting.
Economists after that focused on December as the most probable date for the Fed to begin reducing the purchases.
Twenty-four of 41 economists in a survey last month identified the central bank’s December meeting as the time to taper.
That was before the government shutdown, which was resolved this week when Obama signed legislation opening the government until Jan. 15 next year and suspending the nation’s debt limit through Feb. 7 next year.
Chicago Fed President Charles Evans, an outspoken advocate of pressing on with stimulus, said the central bank should not begin reducing the pace of asset purchases with unreliable numbers.
“Only the data can tell us how much progress we’ve made, and they aren’t saying much right now,” Evans said on Thursday in a speech in Madison, Wisconsin.
“Data available in September were inconclusive, and since then incoming information has been silenced with the federal government shutdown,” he said.
Even Dallas Fed President Richard Fisher, who has called for reducing asset purchases, said fiscal discord has undermined the argument for tapering.
“Across the board — Fisher to Evans — they’re saying tapering is further down the road than it might have been if we hadn’t had the shutdown,” said Michael Hanson, senior US economist at Bank of America Corp in New York and a former Fed economist.
If the data are “impaired from the shutdown,” policy makers may wait until January to begin reducing purchases, he said.