Saturday, October 18, 2014

Top economist looking for Fed to surprise market

On Thursday, the head of the St. Louis Federal Reserve Bank said the Fed may want to keep up its bond buying stimulus for now given a drop in inflation expectations.
However, one day later Boston Fed President Eric Rosengren told CNBC he doesn't expect the U.S. economy to need another round of quantitative easing, although he didn't rule out the option.
The Federal Reserve building.
Getty Images
The Federal Reserve building.
Top economist Maury Harris of UBS Investment Research thinks the Fed will surprise the market at its next meeting. He thinks the Janet Yellen and company could extend bond buying longer than expected.
"Don't forget, they're still buying $15 billion a month," said Harris on CNBC's "Closing Bell." "I think they'll cut that to $5 billion instead of going straight to nothing, (as is widely expected)."
Harris added that the Fed is committed to moving gradually; and slowing the taper rather than ending it, would be, what he called, another example of its gradualism.
If Harris is correct, economist Joe LaVorgna of Deutsche Bank said it wouldn't surprise him. "The Fed has made so many changes over the past year, they could, again, change their minds."
However, both pros added that slowing the end of QE doesn't necessarily mean the Fed will kick a rate hike down the road.
Both pros also said inflation data will likely compel the Fed to raise rates in June of next year. "And when that happens, it could be very disruptive," LaVorgna said.
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