The Federal Reserve with its historic ending of quantitative easing seemed almost hawkish and perhaps a bit oblivious to the impact that the ending of QE might have on the Europe and the rest of the world.
Federal Reserve officials saw diminishing economic benefits from their bond-buying program and voiced concern about future risks to financial stability during their last meeting, when they began to cut the pace of purchases.
Tapering and tightening are rightly interpreted as backing out from two distinct expansionary tools. Even though those two tools have similar effects on the market interest rates, they are not viewed as equivalent.
The Federal Reserve’s balance sheet is poised to exceed $4 trillion, prompting warnings its record easing is inflating asset-price bubbles and drawing renewed lawmaker scrutiny just as Janet Yellen prepares to take charge.
Federal Reserve Bank of St. Louis President James Bullard, who votes on policy this year, said the odds of tapering bond purchases have risen along with gains in the labor market, and any reduction should be modest to account for low inflation.
Based on the monthly figures to Oct. 1 recently released by the St Louis Fed, FMQ jumped $227bn in September to $12,176bn. This puts it $4,819bn and 65% over the long-term exponential trend established between 1960 and July 2008, the month before the Lehman crisis.
Federal Reserve Bank of Philadelphia President Charles Plosser, an opponent of Fed bond purchases, said the central bank should focus on price stability as its primary objective, and not worry as much about “fluctuations” in employment.