The Fed's decision to keep the status quo for the QE programme was in
line with our and market expectations.
We think there are two reasons
that weaken the case for tapering in the near term:
1) the lingering
uncertainties about the budget and debt ceiling entering the new year,
as the leadership agreed to extend the debt ceiling until 7 Feb and
government funding until 15 Jan, and
2) the mixed economic signals
amid the uncertainty over the impact of the partial government
shutdown on economic activity in 4Q13.
In a nutshell, we only expect
the Fed to initiate the tapering of asset purchases once there is stronger
economic improvement and the smooth resolution of the political
impasse over the budget and debt issues. We think that the QE tapering
may be delayed until 2Q-3Q 2014.
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