Fed to stay the course on tapering, end QE by CY14: poll

The Federal Reserve will cut another USD 10 billion from its bond purchases when it meets in March and will wind the program down by year's end, but it won't raise rates until at least mid 2015, a survey of top Wall Street economists showed on Wednesday.

The expectation for the Fed to continue cutting its purchases by USD 10 billion at each of its meetings this year was unanimous among the 17 primary dealers surveyed following the Federal Open Market Committee's first meeting of 2014. That view was essentially unchanged from a similar poll earlier this month.

"The Fed will likely taper monthly asset purchases by USD 10 billion" in the March meeting, said Aichi Amemiya, US economist at Nomura.

He added, however, that the amount could rise to USD 20 billion "if the economy continues to grow at or above 3 percent over the next few quarters."

The primary dealers, who are the major securities firms entitled to trade directly with the Fed, expect the program to be wrapped up somewhere between September and December. The Reuters survey included responses from 17 of the 21 firms.

That has been a consistent view since the Fed announced in December that it would reduce the pace of its bond buying from the original USD 85 billion a month. The Fed said on Wednesday it would cut another USD 10 billion from its monthly purchases, bringing the run rate down to USD 65 billion.

Dealers were more divided, however, in their opinion of whether the Fed would stick to its pledge not to consider lifting its key interest rate until the unemployment rate drops to at least 6.5 percent, especially if inflation remains below a 2 percent target.

Policymakers held to that pledge in Wednesday's statement, and nine of the 14 dealers who responded to a question on the threshold said they expect the Fed to hold fast to it.

However, with the unemployment rate at 6.7 percent already but the growth picture far from certain, five dealers expect the Fed to lower that limit or scrap it altogether. Three of those see it being lowered to 6 percent, perhaps as soon as the upcoming meeting in March.

"The Fed already diminished the importance of the unemployment rate in the last statement when they said they would keep the Fed funds rate low well past the time the unemployment rate drops below 6.5 percent," said RBC Capital Markets economist Tom Porcelli.

A majority of 16 respondents who answered a question on the timing of an interest rate increase don't see a hike in the rate before the second half of 2015, with just two expectations of a rise before that and four seeing a first hike as late as the first half of 2016.

Wednesday's Fed decision came against a backdrop of recent volatility in financial markets, especially in emerging economies, a dose of turbulence many blame on the Fed's decision to curb its stimulus.

The next Fed policy committee meeting will convene March 18 with a statement and news conference expected on March 19. It will be the first meeting with Janet Yellen, current vice chair, at the helm of the US central bank. Current Fed chairman Ben Bernanke will step down on Friday.