QE & Tapering

By

Kumar T

Vaibhav

Sandeep

Vrinda

SUMMARY• In response to the global financial crisis and recession

that began in 2007, the major central banks in a number of advanced economies took unprecedented effort to stabilize and inject liquidity into financial markets.

• Central bank action was aimed at preventing a catastrophic failure of the financial system.

• Tools (Conventional, unconventional)

What is the Fed?

• Central bank of the United States

• Established in 1913

• Purpose is to ensure a stable economy for the nation

• Roles and responsibility

Monetary Policy & Its goals

• Policy changes affect the nation’s supply of money and credit.

• Actions have real short- and long-term effects on the economy.

Stable Prices

Sustainable Economic Growth

FullEmploymen

t

Quantitative Easing

• A monetary policy of central banks that entails buying bonds and other assets in order to inject liquidity to the market.

• Process:– The central bank electronically gives

itself a set amount in its own account.

– Buys bonds and other assets from commercial or investment banks

QE Process

Capital inflows to EM’s

Tapering

• Fed will begin to wind down the size of asset purchase program

• At present , QE is fluid and subject to change based on economic conditions.

• This was illustrated By then fed chairman Ben Bernanke on may 22,2013

Tapering

• On Dec 18, 2013 the Fed announced the first tapering: beginning January, it will reduce its purchases from 85 to 75 billion $

• Fed is on track to reduce the program steadily throughout 2014 as long as economic growth and unemployment remains on track

Why is FED tapering

• Better than expected job growth

• They’re not ending QE, they’re just reducing it

• Tapering isn’t an immediate, dramatic event

• It is likely to take place gradually throughout 2014 so as to create minimal market disruption (i.eDepends on economic condition of US)

Impact on Emerging World

• Bond yields goes up

• Exchange rate plunge

• Forex Reserves depletion

Emerging Market Nightmares FED interest rate raises

• Capital outflow

• Growth hit hard

• High rate low growth Impact their balancesheet

EM’s currency fluctuation

Thank you