"The market's basically put a 75 to an 80 percent chance on a tapering in September, and they're missing one thing. What they're missing is the minutes in July where Bernanke specifically cited tighter monetary conditions as being able to threaten economic recovery."
- Paul Richards, head of FX distribution at UBS
This trading week will be dominated by two events in the world's largest economy- FOMC meeting and the annual meeting of central bankers and policymakers in Jackson Hole, which both be closely monitored for any clues about Bernanke's plans for monetary policy. During the Jackson Hole symposium Barack Obama is likely to consider his choice to replace Federal Reserve Chairman Ben Bernanke, who will not attend the meeting, as was announced in April. At the Kansas City Fed symposium he will be replaced by Fed's Vice Chair Janet Yellen- one of the two top contenders for Bernanke's replacement, however, she is not expected to make any substantive comments.
Until Friday market participants will take part in active debate over whether, how and when the Federal Reserve should pull back from its $85 billion-per-month asset purchase programme. Nonetheless, Paul Richards, head of FX distribution at UBS stressed out that Bernanke is expected to delay his plan to taper QE past September, due to last week's surge in interest rates. As the yields on 10-year Treasuries reached 2.8%, and are likely to hit 2.9% in September, the chance of tapering will be reduced to 50% at most. As a part of central bank's quantitative easing the Fed has been buying $85 billion in Treasuries and mortgage-backed securities per month in an effort to lower borrowing costs.
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