'Corona Quantitative Easing' Comes to an End

US Fed Announces Tapering Starting This Month
Early Economic Recovery and Inflation Spread Prompt Normalization Efforts
Powell Clarifies "Not a Direct Signal for Rate Hike"
Asian Markets Including Korea Rise Following US Increase

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), will begin tapering (reducing asset purchases) starting this month.

[Image source=Reuters Yonhap News]

The normalization of the emergency monetary policy response to COVID-19, which began in March last year, has finally started, marking the end of the quantitative easing era.

As the Fed, the central bank of the world, tightens the money supply, central banks worldwide are also expected to begin normalizing monetary policies, including interest rate hikes. Although the Fed tried to block expectations of interest rate increases, the need to prepare for already anticipated rate hikes and associated risks is expected to grow.

On the 3rd (local time), after concluding the Federal Open Market Committee (FOMC) regular meeting, the Fed announced in a statement that it would reduce its monthly asset purchases of $120 billion by $15 billion increments.

The Fed had abruptly lowered interest rates to near zero and declared unlimited quantitative easing in March last year, implementing ultra-loose monetary policy, but has now shifted direction after 20 months. According to the plan announced that day, tapering will be completed by June next year.

The Fed stated, "The economy has recovered significantly since December last year," and added, "We judge that reducing asset purchases is appropriate, but we are prepared to adjust the pace of purchases depending on changes in the economic outlook." This signals that if the economic situation worsens, the tapering end date may be delayed, and conversely, it could be accelerated.

U.S. media evaluated that the Fed, which had shown dovish behavior, started normalizing monetary policy early in response to the surge in inflation. With employment already substantially recovered, the rationale for continuing asset purchases disappeared as inflation soared.

Fed Chair Jerome Powell also emphasized that tapering could no longer be postponed. He said, "We need to be in a position to act when the time comes," explaining the reason for starting tapering earlier than initially expected at the beginning of the year.

On that day, Chair Powell focused on dispelling market concerns that the Fed might immediately raise interest rates once tapering ends. Powell drew a clear line, stating, "Tapering is not a direct signal of an interest rate hike."

Although tapering was announced, the New York stock market showed relief at the more dovish remarks than expected. Major indices on the New York Stock Exchange expanded their gains after the Fed's statement and Chair Powell's remarks, closing strongly across the board.

Asian markets, including South Korea, which had been closely watching the FOMC results, also showed an upward trend that day. U.S. Treasury yields rose to the 1.6% range reflecting tapering, but the dollar index, which shows the value of the dollar, only rose slightly. The won-dollar exchange rate fell compared to the previous day.

This content was produced with the assistance of AI translation services.