Fed will cut back, but just by $10-15bn per month: Deutsche

The US jobs grew at a lesser pace than expected adding to uncertainty over when the Federal Reserve will begin to trim its massive bond-buying program. Speaking to CNBC-TV18 Peter Hooper, MD, chief economist, Deutsche Bank Securities says the Federal is likely to cut back but with a late tapering. “They will cut back purchase not by 20-25 billion per month but by USD 10-15 billion per month and sit back and see how things develop further in the labour market,” he adds. (Read More)

Below is the verbatim transcript of his interview on CNBC-TV18. Q: What is your reading with regards to the US jobs data? Do you expect the Federal Reserve to go ahead and begin its tapering programme next week?
A: The payroll employment number was somewhat disappointing. They were below a comfortable range and making the call next week on the Fed little closer.
The unemployment data and the number of hours worked was up so not a clear signal but just enough strength in the overall picture in the labour market for the Fed to cut back, but now we are expecting a late tapering. They will cut back purchase not by 20-25 billion per month but in the USD 10-15 billion per month range and sit back and see how things develop further in the labour market. Q: According to you, the Fed will be looking to ease markets into the tapering programme but how is this time for the equity market in light of what is happening with Syria and Obama’s push for a military intervention despite now non-military solutions being talked about?
A: The geopolitical uncertainty is in effect in Fed’s decision along with fiscal policy uncertainty but this will be manageable in terms of its impact on markets, equity markets are doing reasonably well at this point and that is important. It certainly bolsters in the household wealth.
If we get into a negative situation geopolitically then the Fed has to potentially change course but at this point it looks manageable and I expect them to move ahead with a taper. Q: The senate will be voting with regards to whether they should go ahead with Syrian attack or not, have you worked out any numbers, 60 votes is what they require, how are you reading that particular situation?
A: Once again there will be tension around this one. Markets will be a little less concerned this time. Both parties have said that they are not going to shut down the government, they are not going to go that far but there will be pressure from the republicans to cut spending from the democrats to get some progress on the revenue side. I expect some tension in the market but I do expect the vote to go through to raise the debt ceiling when the time comes in mid-October.