Wall Street has tightened its view of Federal Reserve policy in the months ahead and is now looking on average for the taper, or reduction in Fed stimulus to the economy, to come in February, according to the CNBC Fed Survey for December. The expectation for February is two months earlier than the average in the CNBC survey in October, but most of the 42 respondents are actually more hawkish. A full 55 percent see the Fed tapering its bond purchases in January or December. That was the forecast of only 16 percent of respondents in October. "The budget deal makes a taper more likely," John Donaldson of Haverford Trust wrote in response to the survey. Fed Chairman Ben Bernanke "was very pointed during his September press conference that the budget/debt ceiling mess was a concern to the FOMC. This deal removes that concern and opens the door to a taper." But not everyone agrees. More than 40 percent forecast a taper in March or later with this group believing the Fed has fought too hard to boost the economy to endanger it with a premature stimulus reduction.

"Federal Reserve officials are wary of removing the 'training wheels' too soon," said Lynn Reaser, Point Loma Nazarene University. "At some point, the economy will need to ride on its own, but policymakers are worried about inflicting too many scrapes and bruises along the way." Yet there's evidence that the Fed has achieved its goal of convincing markets that tapering is not tightening. Even while survey participants have brought forward the date of the expected taper, they have reduced their outlook for the Fed funds rate in 2015. The rate is now seen at 70 basis points, down from nearly a full percentage point in July.

John Lonski of Moody's points out that the high-yield spreads have been especially well behaved, hitting a new low for the cycle despite all the taper talk. They are, in fact, below where they were when the Fed began talking about tapering in June. He sees that as a sign fixed-income markets may not skyrocket on taper news. John Ryding of RDQ Economics points to the improving jobs data and asks, "What else does the Fed need to see to announce a taper?" He notes job growth is running at 200,000 monthly and fourth quarter growth is looking stronger after a robust third quarter. Survey participants believe their individual views on tapering are mostly baked into markets. When it comes to Treasurys, 75 percent of the taper is seen already discounted and 71 percent for the mortgage market. But only 63 percent of the taper is discounted in equities, suggesting stocks could either fall more or experience greater volatility when the Fed does move. Respondents differed on the stock market impact. "Tapering is coming, and I expect QE to be reduced by 40 percent for the full year 2014 vs. 2013," said John Kattar of Ardent Asset Advisors. "But that's still a lot of money. After some early volatility around the taper announcement, stocks should have another good year." On average, participants see the Standard and Poor's 500 stock index falling to 1773 by year end and rising just 4 percent next year to 1857. The U.S. 10-year note yield is seen ending the year at around its current level of 2.88 percent and rising to 3.44 percent next year.

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