The Primary Dealers Have Spoken: Taper Begins September With $15 Billion Trim; QE Ends June 2014

Back on July 17, the New York Fed, which as always operates based on the decisions and inputs of its Primary Dealer superiors, asked the Dealer community for their thoughts on the Taper, specifically when and how much. The survey has come back and the PD community has spoken. The answer: Taper is announced, and begins, September with the first reduction in monthly purchases of $15 billion ($10Bn cut in TSY purchases, $5BN cut in MBS), eventually tapering to nothing in June 2014 when the Dealers believe QE formally ends.

The breakdown of the forecasts by percentile:

And their provided commentary for the assumptions used:

While several dealers noted that recent FOMC communications have influenced their expected path of asset purchases, several others highlighted that economic data will continue to determine the timing of reductions in purchase pace. Several dealers noted their expectation that pace reductions would occur at meetings followed by press conferences and the release of quarterly projections. Several dealers noted future reductions in the pace of each Treasury and MBS purchases are likely to be evenly split between both asset classes. Several dealers noted the possibility of reducing Treasury purchases at a faster pace than MBS purchases to provide support for the housing market, while several others suggested MBS purchases would see relatively larger declines due to possible market functioning issues in the MBS market.

Source: NYFED