ECB Asmussen Warns About Fed Tapering Effects in Rest of the World

The spillover effects of the U.S. central bank unwinding its policy stimulus risk being greater now than in 1994, and that episode highlights the importance of clearly communicating exit strategies from expansionary policies, an ECB policymaker said.

The Federal Reserve is expected to start slowly reducing its bond purchases when it meets later this month, beginning to unwind a policy that has helped foster recovery in the world’s largest economy and buoyed financial markets.

“In early 1994, when the U.S. recovery gained strength, the Fed started a tightening cycle and bond markets crashed not only in the U.S. but also around the world,” European Central Bank Executive Board member Joerg Asmussen said on Tuesday.

“If spillovers were large in 1994, we can expect them to be even larger today in an even more deeply interconnected world,” he added in the text of a speech for delivery in Brussels.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza