Forex News – Improving US economy underpins Fed taper
December 23, 2013 5:28 pm
Markets are focused on US data following the Federal Reserve’s announcement on December 18 to scale back its stimulus program. Since Federal Reserve Chairman Ben Bernanke first mentioned earlier this year that tapering was data-dependent, much of the dollar’s recent strength especially against the yen has been driven by improving US data.
Last Friday, GDP data showed the US economy expanded at the fastest pace in two years in the third quarter. The revised figures showed a 4.1% growth at an annualized rate, compared to a previous estimate of 3.6%.
The main driver behind this strong growth was strong consumer spending which makes 70% of economic growth. Consumer spending increased the most in five months.
Meanwhile, other areas of the US economy also showed improvement. US factory output rose for a fourth straight month while the housing sector showed encouraging recovery as housing starts hit a five-year high.
The most important data to the Fed are employment data. The latest nonfarm payrolls report rose more-than-expected suggesting a bright outlook for the labour market. It could be argued this data as well as the other improving US data prompted the Fed to scale back its $85 billion-a-month bond buying program by $10 billion-a-year month in January.
Fed Chairman Ben Bernanke signalled last week that further tapering will come if data continue to show that the US economy keeps showing signs of improvement.
Expectations are for the quantitative easing (QE) program to completely end by the end of 2014 depending on the data.
Markets are focused on US data following the Federal Reserve’s announcement on December 18 to scale back its stimulus program. Since Federal Reserve Chairman Ben Bernanke first mentioned earlier this year that tapering was data-dependent, much of the dollar’s recent strength especially against the yen has been driven by improving US data.
Last Friday, GDP data showed the US economy expanded at the fastest pace in two years in the third quarter. The revised figures showed a 4.1% growth at an annualized rate, compared to a previous estimate of 3.6%.
The main driver behind this strong growth was strong consumer spending which makes 70% of economic growth. Consumer spending increased the most in five months.
Meanwhile, other areas of the US economy also showed improvement. US factory output rose for a fourth straight month while the housing sector showed encouraging recovery as housing starts hit a five-year high.
The most important data to the Fed are employment data. The latest nonfarm payrolls report rose more-than-expected suggesting a bright outlook for the labour market. It could be argued this data as well as the other improving US data prompted the Fed to scale back its $85 billion-a-month bond buying program by $10 billion-a-year month in January.
Fed Chairman Ben Bernanke signalled last week that further tapering will come if data continue to show that the US economy keeps showing signs of improvement.
Expectations are for the quantitative easing (QE) program to completely end by the end of 2014 depending on the data.
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