Federal Reserve pronounces end of a QE-era
- 10 years ago
There will be no more money printing. As expected, the US central bank has ended its monthly bond buying to pump cash into the economy there and stimulate growth.
The Federal Reserve also signaled confidence the US economic recovery will remain on track, despite signs of a slowdown in the eurozone and many other parts of the global economy.
In a statement following their two-day meeting, Fed Chair Janet Yellen and the other policymakers largely dismissed recent financial market volatility, lacklustre growth in Europe and a weak inflation outlook.
They also re-stated interest rates will remain low for a “considerable time”.
The controversial bond-buying – initiated by previous central bank head Ben Bernanke – focused on countering high unemployment and the Fed believes it is working saying it sees improved labour market conditions and “solid job gains”.
The Fed acknowledged lower energy prices and other forces are holding inflation down below where it would like but doesn’t think that is a long term problem.
For more on this story, Oleksandra Vakulina spoke to euronews correspondent Stefan Grobe in Washington.
“Stefan, since 2008 the Federal Reserve has launched three rounds of bond-buying programmes, the first two were mainly aimed at stabilising the financial system and the latest at ‘quickening the recovery’. How effective was this third round?”
Stefan Grobe: “The Fed will tell you that it was effective, that unemployment has come down from above eight to below six percent of the workforce, that the economy has grown, though modestly, that it boosted hiring and that it helped lower long-term interest rates.
“The opponents on Capitol Hill and in academia, even within the Fed, would tell you that QE3 has only compounded the existent inequality in America, that the newly created jobs are low paying jobs, that wages are stagnant, and that the economy in general grew pretty erratically. So that thinking is: the middle class got creamed again (suffered again) while stock owners only got richer.”
Oleksandra Vakulina, euronews, Lyon: “For nearly six years the central bank has been pumping money into the US economy. Now, the bond-buying programme is over – is the economy strong enough to do without that stimulus and can it grow on its own?
Stefan Grobe: “That’s the million dollar question, right? Let’s remember, QE3 has swelled the Fed’s balance sheet to unprecedented levels. The money the Fed created to buy bonds – that’s more than three trillion dollars – could fuel excessive inflation when growth finally picks up. Or it could lead to asset bubbles that could cause financial instability and potentially another crisis. Then there is always the risk of a severe blowback that could be triggered by almost anything.”
Oleksandra Vakulina, euronews, Lyon: “All the Fed’s decisions are closely watched outside the US, but this one is of particular importance. How would it influence Europe and the emerging markets?”
Stefan Grobe: “If the US economy picks up, that should give Europe and emerging markets a big boost, but there are other important elements here as well, such as what happens to the dollar, what happens to oil prices, and finally how will things shape up within the eurozone.”
The Federal Reserve also signaled confidence the US economic recovery will remain on track, despite signs of a slowdown in the eurozone and many other parts of the global economy.
In a statement following their two-day meeting, Fed Chair Janet Yellen and the other policymakers largely dismissed recent financial market volatility, lacklustre growth in Europe and a weak inflation outlook.
They also re-stated interest rates will remain low for a “considerable time”.
The controversial bond-buying – initiated by previous central bank head Ben Bernanke – focused on countering high unemployment and the Fed believes it is working saying it sees improved labour market conditions and “solid job gains”.
The Fed acknowledged lower energy prices and other forces are holding inflation down below where it would like but doesn’t think that is a long term problem.
For more on this story, Oleksandra Vakulina spoke to euronews correspondent Stefan Grobe in Washington.
“Stefan, since 2008 the Federal Reserve has launched three rounds of bond-buying programmes, the first two were mainly aimed at stabilising the financial system and the latest at ‘quickening the recovery’. How effective was this third round?”
Stefan Grobe: “The Fed will tell you that it was effective, that unemployment has come down from above eight to below six percent of the workforce, that the economy has grown, though modestly, that it boosted hiring and that it helped lower long-term interest rates.
“The opponents on Capitol Hill and in academia, even within the Fed, would tell you that QE3 has only compounded the existent inequality in America, that the newly created jobs are low paying jobs, that wages are stagnant, and that the economy in general grew pretty erratically. So that thinking is: the middle class got creamed again (suffered again) while stock owners only got richer.”
Oleksandra Vakulina, euronews, Lyon: “For nearly six years the central bank has been pumping money into the US economy. Now, the bond-buying programme is over – is the economy strong enough to do without that stimulus and can it grow on its own?
Stefan Grobe: “That’s the million dollar question, right? Let’s remember, QE3 has swelled the Fed’s balance sheet to unprecedented levels. The money the Fed created to buy bonds – that’s more than three trillion dollars – could fuel excessive inflation when growth finally picks up. Or it could lead to asset bubbles that could cause financial instability and potentially another crisis. Then there is always the risk of a severe blowback that could be triggered by almost anything.”
Oleksandra Vakulina, euronews, Lyon: “All the Fed’s decisions are closely watched outside the US, but this one is of particular importance. How would it influence Europe and the emerging markets?”
Stefan Grobe: “If the US economy picks up, that should give Europe and emerging markets a big boost, but there are other important elements here as well, such as what happens to the dollar, what happens to oil prices, and finally how will things shape up within the eurozone.”