Janet Yellen Reconsidering Stimulus Tapering

Janet Yellen Reconsidering Stimulus Tapering
The comic features features Fed Chair Janet Yellen as a contestant on the game show "Who Wants To Be A Millionaire". The audience behind Yellen, which includes former Fed chief Ben Bernanke, are throwing tomatoes at her. Caption for the comic: "After disappointing markets last week, will Yellen make it up to them later this year?" The Federal Reserve's decision last week not to raise interest rates disappointed most market players who were expecting the central bank to hike rates for the first time since 2006. The questions remains whether Yellen and the Fed will make it up to them at some point later this year, or will they delay the move to early 2016. The central bank has two more scheduled policy meetings before the end of 2015, in late October and mid-December.

Federal Reserve Chairwomen Janet Yellen has stated that the Fed may reconsider its cuts to the quantitative easing program if the U.S. economy continues to remain weak. Ms. Yellen has said, however, that America’s weak economy could be due more to the exceptionally harsh winter, rather than any fundamental weaknesses in the economy.

The Fed last cut the quantitative easing program in January, trimming it by $10 billion dollars to $65 billion. So far, the Fed has been indicating that it will continue to taper the program, but the recent words by Yellen suggest that the Fed may be cautious moving forward.

Star hedge fund macro trader Colin Lancaster warns: Inflation is back

InvestorsTalk of inflation has been swirling for some time amid all the stimulus that's been pouring into the market and the soaring debt levels in the U.S. The Federal Reserve has said that any inflation that does occur will be temporary, but one hedge fund macro trader says there are plenty of reasons not to Read More

Quantitative easing program has global implications

The Fed’s quantitative easing program is widely watched by central banks across the world. Through quantitative easing, the Federal government creates huge sums of new money. Essentially, the Fed creates money and then buys assets, such as bonds. This, in turn, injects more money into the money supply, which increases liquidity and artificially suppresses the dollar.

Increased liquidity and a suppressed dollar makes it easier for central banks and companies across the world to take out loans in dollars. Increased lending in developing country and a cheap U.S. dollar has encouraged many foreign companies to take out loans in order to fuel expansions and investments.

As the Fed rolls back its stimulus package, however, the amount of money flowing into emerging markets will dry up. This could cause a lot of pain for countries such as Indonesia and India, which have been relying on access to cheap dollars. This, in turn, could cause economy growth across the world to slow, and could cause considerable amounts of pain in some markets.

For this reason, the Fed and its moves have been closely followed by traders and policy makers around the world. Stock markets across emerging Asia have been increasingly turbulent in recent months, largely due to the Fed’s plans. If the Fed were to hold off on tapering, many emerging markets would likely see a boost.

Future tapering will depend on the strength of the economy

Tapering could restrain economic growth in the short term, but most analysts agree that the program cannot be sustained forever. The Fed had planned to aggressively cut back its tapering program this year, but recent poor jobs reports and a potentially weakening economy could cool off tapering efforts.

As the Fed tapers its quantitative easing program, liquidity will decrease and companies will not have as much access to cash. This can result in less investment and slower spending. Indeed, retail sales fell by .4% and industrial production slid by .3% since February 13th.

Yellen reiterates strength of economy

Yellen reiterated, however, that the U.S. economy is strong and she expects it continue to grow. Ms. Yellen also pointed out that a longer than usual winter is likely constraining spending, but the extent of such constraint remains unknown.

No posts to display