Monday, 22 April 2013

G20 and IMF mindful of QE side effects as Fed expected to persist

The G-20 gave qualified support for quantitative easing policies last week. From Bloomberg:

Group of 20 finance chiefs pledged to stay alert to any fallout from easy monetary policies even as they backed the Bank of Japan’s plan to buy more than 7 trillion yen ($70 billion) a month of bonds.

In a nod to concerns that stimulus in one economy often creates challenges elsewhere and could fuel asset bubbles, the G-20 officials meeting in Washington heightened their commitment to being “mindful of unintended negative side effects stemming from extended periods of monetary easing.”

The IMF has also shown concerns about the unintended consequences of QE.

Although the spotlight fell on currencies, the International Monetary Fund, which held its spring meetings alongside the G-20 gathering, last week said loose monetary policy could inflate credit bubbles, threatening a fresh round of financial crises...

The IMF plans a study on how best to unwind stimulus, said Managing Director Christine Lagarde, who called the current support programs “appropriate.”

Quantitative easing is unlikely to be unwound soon though, at least in the US, according to Wall Street analysts. Again from Bloomberg:

Wall Street’s biggest bond dealers see little chance the Federal Reserve will slow the pace of debt purchases designed to boost economic growth before year-end, even as policy makers face calls to curb the buying.

Of the 21 primary dealers that trade with the central bank, 14 said in a Bloomberg News survey that the Fed won’t start to reduce its $85 billion monthly bond buying until the last three months of 2013. Twelve forecast they will end in mid-2014 or later. Fifteen say it will take until at least June 2015 for policy makers to raise the record low benchmark interest rate target of zero to 0.25 percent. Goldman Sachs Group Inc. chief economist Jan Hatzius sees no increase before January 2016.

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