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The Global Economy in Turbulent Times
book

The Global Economy in Turbulent Times

by See-Yan Lin
June 2015
Intermediate to advanced content levelIntermediate to advanced
600 pages
27h 11m
English
Wiley
Content preview from The Global Economy in Turbulent Times

CHAPTER 41 An Inconvenient Truth: QE Withdrawal Syndrome1

It’s done. The markets swallowed it hook, line, and sinker—it’s just a matter of time to let the “food” fight it out inside. I refer to the morsel fed by Fed Chairman Ben Bernanke on May 22, 2013, when he told the US Congress: “If we see continued improvement and we have confidence that that is going to be sustained, then we could at the next few meetings take a step down in our pace of purchases.” As to be expected, markets ignored the “if” and the “could” and freaked out with the usual knee-jerk reaction, as though the Fed would start winding down later in the year the QE3 easy-money policies (currently at a US$85 billion monthly clip in asset purchases) and bring them to a halt by mid-2014.

Investors fled stocks and bonds, fretting that the era of ultra-low interest rates and abundant easy central bank cash may soon end, resulting in interest rate hikes and falling bond prices. The stock markets gyrated. Markets the world over recoiled. All of this suggests that the sell-off reflected investor addiction to cheap money. As such, withdrawal is bound to be fertile and volatile. Financial markets have since calmed, their anxiety eased based on analyses from seasoned Fed watchers and assurances from the most senior Fed officials on what the Fed actually meant.

It turns out, not surprisingly, that markets simply overreacted. Indeed, Bernanke has demonstrated once again his determination to ensure that history will not accuse ...

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Publisher Resources

ISBN: 9781119059967