Why The Entire World Is So Concerned About The Fed's Next Move
Fed Likely to Signal Tapering Move
Ben Bernanke is likely to signal that the U.S. Federal Reserve is close to tapering down its $85 billion-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy.
The Fed chairman has a double communications problem. Markets seem reluctant to acknowledge the improvement that is leading the Fed towards a taper of QE3. But they also appear to be assuming, incorrectly, that any taper means the Fed has become less willing to support the economy's recovery.
Mr Bernanke is likely to push against both misperceptions, combining an upbeat message on how the strength of the economy will soon justify a taper, with a signal that further tapering depends on further improvement in the economy and in no way brings forward an interest rate rise.
When it started QE3 last September, the Fed said it would keep buying assets until there was a "substantial improvement" in the outlook for the labor market. Since then, two main developments have been driving the Fed's move towards a taper now.
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
You agree to website policy and terms of use
As we explained earlier, this week's Fed meeting is one of the most hotly anticipated Fed meetings in a long time. The recent increase in interest rates and growing talk about the Fed "tapering" its pace of bond purchases has everyone eager to parse every word in the Fed statement, and Bernanke's post-meeting press conference. And it's not just domestic investors who are concerned. The entire world is watching. And for good reason.
In an interview with WSJ, a member of Hungary's central bank explains why the Fed matters from the perspective of his country:
Hungary's central bankers are worried that any rapid scaling back of easy-money policies by the U.S. Federal Reserve could lead to an abrupt spike in government borrowing costs, weaken the local currency and force an end to their campaign of interest-rate cuts, a bank rate-setter said.
A sudden move by the Fed and other major central banks "would be dangerous and very unfavorable for markets," said Gyula Pleschinger, a member of the National Bank of Hungary's monetary-policy council in an interview with The Wall Street Journal.
read more ...