A growing number of economists surveyed by Bloomberg say the Federal Reserve will begin trimming its $85 billion in monthly bond purchases in September.

That was the view of half of those who participated in the July 18-22 survey, up from 44 percent in last month’s poll. Even as expectations of a September taper rose, 10-year Treasury yields continued to fall last week from an almost two-year high after Fed chairman Ben S. Bernanke said reducing bond-buying wouldn’t constitute policy-tightening.

“The markets have adjusted to the new information that the Fed is likely to reduce purchases over the near term, and they’ve come to terms with it,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. “Investors believe it won’t be a strong negative for the markets or the economy.”

None of the 54 economists surveyed expects the Federal Open Market Committee to begin paring its purchases at its meeting scheduled for July 30-31. In its first trim, the FOMC will probably cut monthly bond buying to $65 billion. They see purchases divided between $35 billion in Treasuries and $30 billion in mortgage-backed securities, according to the median estimate of economists.

The central bank will probably halt the asset purchases in the second quarter of next year, according to half of the economists. Twenty-four percent forecast the FOMC will end so-called quantitative easing in the third quarter of 2014.

The Fed will buy a total $1.32 trillion in bonds at the completion of its third round of bond buying, according to the median estimate. The FOMC began with $40 billion in monthly mortgage bond purchases in September and added $45 billion in monthly Treasury purchases in December.

The yield on the 10-year Treasury note soared to an almost two-year high of 2.75 percent on July 8 from 2.19 percent on June 18, the day before Bernanke said the Fed may consider reducing bond purchases this year if the economy performs in line with the central bank’s forecast. The yield fell 0.04 percentage point to 2.49 percent on July 17, when Bernanke told a congressional panel that he hasn’t put bond purchases “on a preset course” but will adjust them based on economic data.

“It would be appropriate to begin to moderate the monthly pace of purchases later this year” if economic data match Fed forecasts, Bernanke told lawmakers. “If the subsequent data continued to confirm this pattern of ongoing economic improvement and normalizing inflation, we expected to continue to reduce the pace of purchases in measured steps through the first half of next year, ending them around midyear.”

The Fed chairman plans to hold his next press conference after the FOMC’s Sept. 17-18 meeting, when Fed officials will next update their forecasts for the growth, unemployment and inflation.

Fed Governor Jeremy Stein, in a speech last month, identified the September meeting as a possible time for altering the pace of asset purchases.

The FOMC should “be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program,” Stein said on June 28 in New York. The Fed should “not be unduly influenced by whatever data releases arrive in the few weeks before the meeting ― as salient as these releases may appear to be to market participants.”

Stein’s speech “was very much fixated on September,” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York and a former researcher at the Federal Reserve Bank of New York. Bernanke’s semi-annual testimony to Congress last week “softened the schedule and brought back the data dependence that Stein reduced,” she said, referring to Bernanke’s comment that the FOMC will alter buying based on fresh economic indicators. 

(Bloomberg)