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Economic Daily News: Grading the Fed's QE policy
Central News Agency
2013-12-20 10:52 AM
Citing improvements in labor market conditions, the U.S. Federal Reserve announced Wednesday that it will draw down its monthly bond-buying program with a US$10 billion cut to US$75 billion effective January. This is seen as the first step taken by the United States toward phasing out its quantitative easing policy. Indeed, the U.S. economy is obviously moving in a positive direction, with the unemployment rate dropping to a five-year low of 7 percent in November. The industrial production index for that month rose to 101.3, surpassing the previous peak level seen in December 2007. The purchasing managers index, meanwhile, continued an expansion trend in December despite a slight dip from last month. At the same time, the Fed is aware of the low inflation rate, which stood at just 1.3 percent in November -- below the 2 percent goal. This is why the Fed has elected for a gradual tapering off of QE rather than a complete end to the policy. QE has undoubtedly helped stabilize global liquidity flows and asset values and prevented a loss of economic momentum. There is, however, no evidence indicating that the increases seen in industrial production and employment are a result of the policy. The US$4 trillion spent on the stimulus have had obvious effect in stabilizing stock and real estate markets but only limited effect on consumer prices. In China, although a 4 trillion yuan (US$658.85 billion) stimulus package has given a short-term boost to the economy, the negative effect of an economic bubble has begun to emerge. All these are issues to be considered when central banks around the world assess the effectiveness of their monetary policies. (Editorial abstract -- Dec. 20, 2013) (By Y.F. Low)
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