ECB concerns over U.S Fed Reserve tapering plans
The European Central Bank has shown concerns over the U.S Federal Reserve’s tapering plans in its bi-annual Financial Stability Review which was published yesterday.
In order to protect both the U.S and global economy in its current state of slow recovery, tapering of America’s $85 billion a month asset purchase scheme has been prolonged since October. European stocks were boosted by the decision not to taper the economic stimulus, with rises in in London’s 100 index, Paris’s Cac, and Hong Kong’s Hang Seng index.
However, the risk of disturbance in the vulnerable global financial system remains high and the European Central Bank is keen to maintain the tapering freeze. It has cautioned that any movement by the Federal Reserve could cause market shocks which would be hugely detrimental to the positive growth that has been posted in recent months.
The Vice Chair of the Board of Governors of the Federal Reserve, Janet Yellen is thought to start tapering the Federal Reserve’s asset purchasing scheme in March 2014. In its Financial Stability Review, the ECB highlighted areas that it felt would be hit hardest by any movement towards tapering, including the foreign exchange market and future asset price developments, not to mention the emerging market economies that have taken much of the strain from changing U.S financial policies.
Its advice is to stabilise financial policies and avoid returning to an economic crisis by using “stable and predictable macroeconomic policies” and “forward guidance”. Eurozone member countries would play a key role in achieving this, but cooperation between the U.S and Europe must be solved in order for success.