THE Federal Reserve (Fed) 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.
Policy makers will pare the monthly pace of asset buying to US$70 billion from US$85 billion (RM221 billion from RM268.5 billion) at their March 18-19 meeting, 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 September 17-18 meeting, 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, an economist at BNP Paribas SA 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."
The United States central bank will reduce monthly purchases to a US$25 billion pace by July and end the programme at the October 2014 meeting, according to the survey conducted this week.
Chairman Ben S. Bernanke's second term ends January 31, and President Barack Obama has nominated 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 before the September meeting.
"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 September 18-19 survey 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 January 15 and suspending the nation's debt limit through February 7.
The policy-setting Federal Open Market Committee's last two meetings this year are scheduled for October 29-30 and December 17-18.
"They're not tapering in October, but they never were," said Joseph LaVorgna, chief US economist at Deutsche Bank Securities Inc in New York.
"Conceivably, December is still on the table, although it's possible the integrity of the October data may not be great." Bloomberg