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Wall Street firms see Fed tapering bond buys starting next year

FILE PHOTO: A street sign, Wall Street, is seen outside New York Stock Exchange (NYSE) in New York City, New York, U.S., January 3, 2019. REUTERS/Shannon Stapleton

SAN FRANCISCO (Reuters) - Wall Street firms expect the Federal Reserve to start paring back its bond-buying next year, and phase it out completely by the second half of 2023, the New York Fed’s latest survey of primary dealers shows.

The Fed has since June said it will buy “at least” $120 billion a month in Treasuries and mortgage-backed securities “over coming months,” but has not given any precise guidance on its asset-purchase plans. It has bought about $3 trillion since the start of the crisis to help stabilize financial markets and boost the economy.

The survey, whose results were shared internally at the central bank ahead of its September policy meeting and released publicly on Thursday, shows banks expect the Fed to begin trimming MBS purchases in the first half of 2021, and by the second half to have pared total purchases to $84 billion a month, on average.

The Fed is expected to taper purchases further in 2022, to a monthly average of about $25 billion by the second half, according to the survey.

Those expectations contrast with investor speculation that the Fed may need to boost bond-buying at some point to help the recovery along.

They also seem at odds with the Fed’s own guidance on keeping monetary policy super easy for years to come.

Last month the Fed said it will not raise interest rates until the economy is at full employment and inflation has reached and looks set to exceed 2%, a process policymakers signaled they think will take until at least 2023.

Bank expectations before the meeting appeared to be already in line with that new guidance. Interest rates, banks said in the survey, would begin to rise only in the second half of 2024.

The presidents of both the Kansas City Fed and the Chicago Fed this week said the Fed should be more explicit about future asset purchasing plans, though minutes of the Fed’s most recent meeting show that most of their colleagues have no problem with the guidance as it stands.

Reporting by Ann Saphir in Berkeley, Calif.; Editing by Matthew Lewis