Flash: Finally, some QE tapering guidance from Bernanke - DBS Group

FXstreet.com (Barcelona) - DBS Group analysts comment that at long last, Bernanke has offered some numerical guidance on QE tapering.

They feel that this should go a long way towards ending the “will they, won’t they and what the heck does it depend on?” debate that has roiled markets for the past month. Further, they add that the guidance framework isn’t as transparent as it is for the short end, where Fed funds could start to rise once the unemployment rate falls below 6.5%. However, they feel that it clearly hinges on the unemployment rate, and its falling in line with the better projections Fed officials made /released yesterday. They write, “On average, the Fed now expects the unemployment rate to drop to 7.2%-7.3% by year-end, a tick or two better than what it envisioned back in March. And, “if the data are broadly consistent with this forecast, the committee anticipates that it would be appropriate to moderate the pace of purchases later this year”.” They finish by noting that Bernanke added that QE3 could be ended altogether once the unemployment rate drops to 7%, and a straight line interpolation of current Fed projections envisions a 7% unemployment rate in May 2014.