The US Federal Reserve (Fed) is about to end its exceptional support to the economy launched in 2008 after the financial crisis as the economy continues a moderate expansion this coming Wednesday.
Most analysts expect the Monetary Policy Committee (MPC), which completed on Wednesday a two-day meeting, to keep its promise by ceasing its purchases of Treasury bonds and securities backed by mortgages.
However, the rates should remain near zero as they have been since the end of 2008.
These cash injections were announced in September 2012 under the third component of the exceptional monetary assistance (QE3) to continue to support modest economic recovery. They raise more than $15 billion per month. The Fed began reducing financing last December after investing 85 billion dollars.
Completion of exceptional funding is not synonymous with a complete end to the policy of easy money, because the central bank will continue to reinvest the proceeds of maturing securities.
The Fed President Janet Yellen reiterated last month that if the economy permits, asset purchases will conclude at the October meeting at the end of which there is no press conference scheduled. Economic growth continued to “moderate” pace, according to the latest Beige Book. Growth in the third quarter, which will be known on Thursday is expected to show 3%, analysts say.
For the independent analyst Joel Naroff, the MPC will sign “the end of the monetary expansion, but concerns about the low inflation and the underutilization of the labor market should continue to be under the spotlight “.
Because of the market turbulence in mid-October and the poor performance of growth and inflation in Europe, the debate resumed briefly in the United States on whether to conclude the purchase of assets.
An officer of the Fed, James Bullard, non-voting member of the MPC this year, suggested that the central bank delays the closure of the program and keeps it “alive” until further notice.
“These comments were intended only to calm markets during this period of extreme volatility,” says Steven Ricchiuto, economist at Mizuho Securities USA. This representative Fed “knew very well that it would be interpreted as a reassuring sign for the markets. Other massive sales have been avoided, also commented economist Washington Post columnist Steven Pearlstein.
With the end of asset purchases, the Fed comes into effect in a new era, “an air pocket” that can worry the markets, as it is called John Burbank, founder of Passport Capital funds. She turns the page of the exceptional monetary support and uncertainty that opens with a first rate increase.
As another topic of discussion, which had already occupied the last MPC meeting is the fate of the phrase “a considerable period of time” before first rate increase.
This message was ultimately retained, especially as the Fed members had expressed concern about economic weakness in Europe and the rise of the dollar. Acting on imported prices, a stronger dollar may slow US inflation to the 2% target (1.5% currently, according to the PCE index). But some still consider this too restrictive time reference. In September, two MPC members voted against.
However, many analysts believe that the message will remain, at least until the MPC meeting in December. “We expect that the Fed maintains its policy for “a considerable period,” according to economists at Barclays Research.
The analyst Steven Ricchiuto thinks, however, that the Fed should take advantage of market adjustment to change its formula on Wednesday without causing further unwanted volatility.