"We see a lot more certainty for 2014. With the unemployment rate falling, the Fed's action last week and the government budget agreement, all of that gives us a much stronger outlook for 2014, which brings us to raising our forecast."
- Christine Lagarde, IMF Managing Director
On December 18 Ben Bernanke has announced the tapering of the Federal Reserve's stimulus programme by $10 billion per month starting January. Analysts, however, argue that the QE had limited effect on the U.S. economy and has created an enormous inflationary risk in case the economy starts to grow. During the last five years the Fed has tripled its balance sheet, by purchasing bonds, while unemployment rate still hovers above 7% and there have been little signs of an improvement in private sector, which represents the biggest part of the economy. Ending QE will now allow to focus on the real problems that caused economic slowdown and which, most likely, have little to do with the need for ultra-loose monetary policy.
The main concern for the Fed now is not just to taper off the recent bond purchases, rather then how to start unwinding them. While the market reactions suggests investors are welcoming the end of the QE, only because it reduces the level of uncertainty surrounding future plans of the Fed, the central bank is now likely to sell back what it has bought. Nevertheless, no one is going to buy these assets at same rates the Fed paid for them. Therefore, the difference between the acquisition and selling prices is the net increase of the central banks reserves. A selloff might help, however, the question is who will buy them back at any decent price.
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