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HindustanTimes Wed,03 Sep 2014

US Fed doubles tapering, global markets feel the aftershocks

Yashwant Raj, Hindustan Times  Washington, January 30, 2014
First Published: 23:22 IST(30/1/2014) | Last Updated: 02:34 IST(31/1/2014)

The US Federal Reserve’s move on Wednesday to cut its monthly bond buying programme by $10 billion citing an improving American economy sent global stocks down as fears of cheap money exiting markets hit shares.

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Starting February, the Fed would buy $65 billion in bonds per month, down from the current $75 billion.

Indices in Hong Kong, China, Singapore and Japan fell in the range of 0.48-2.45%, while France, German and UK markets also eased. The MSCI All-Country World share index fell 0.4% to 391 points, hitting its lowest levels since early November.

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The reduction in bong buying was announced after a two-day meeting of the Fed’s top policy-making committee, which was also the last to be called by departing chairman Ben Bernanke, who will hand over the reins to Janet Yellen on Friday.

The Fed bought bonds worth $85 billion a month to boost the economy till December, 2013. It was cut by $10 billion in January, and now another $10 billion. "In light of the cumulative progress toward maximum employment and improvement in the outlook for labor market conditions, the committee decided to make a measured reduction in the pace of its asset purchases," the Fed said in a statement.

Talk of an impending taper — a term used to describe the gradual  winding down of the the Fed’s easy money policy (also called quantitative easing) — had hit markets worldwide last April, including the Indian rupee.

"I think there is a lack of positive triggers right now, and there is a growing concern about what happens. It’s no 1998 ...we have a very cautious stance on all emerging market equities and currencies at the moment," said Hans Peterson, global head of investment strategy at SEB Private Banking.

(With agency inputs)


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