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End of Fed’s stimulus program beneficial to US’ EME partners

By Joann Santiago

MANILA, Oct. 30 (PNA) — Emerging market economies (EME) that have trading pact with the US are seen to profit from the Federal Open Market Committee’s (FOMC) decision to end the Federal Reserve’s stimulus program.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the announcement, made after the FOMC’s two-day meeting on October 28-29, “was widely expected.”

”… and to the extent this confirms the underlying strength of the US economy, it should be positive for EME trading partners of the US, including the Philippines,” he said.

The Committee, in deciding to end the third quantitative easing program of the Fed, noted that since its meeting last September the US economy registered moderate expansion in economic activity and labor conditions.

It further “expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate.”

And because of these factors, the Committee decided to end the stimulus program after noting that “there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program.”

” Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability,” it said.

The Committee, however, maintained the Fed’s key rates between zero to 0.25 percent, which it considers to remain at “appropriate” levels.

“In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation,” it said ,citing that among the factors that would be considered are labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.

Some analysts earlier expected the Fed to start hiking key rates in the third quarter of 2015 but some have changed their projections following statements from some Fed officials.

The FOMC, in a statement, said “if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.”

It, however, stressed that “if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.”

Relatively, Tetangco said the Fed’s decision to end its bond-buying program “also takes out one aspect of uncertainty in the market.”

He, on the other hand, cited that “language that Fed could keep rates low for a considerable time, could still keep market participants on the look out and therefore still mean some market volatility before the lift off actually happens.”

“We will remain watchful of market conduct, particularly in the near-term in the spot foreign exchange market, to check for threats of possible excessive moves and if there is need for BSP to act. That said, the Fed action gives us some latitude to keep rates steady (as our own domestic inflation dynamics are also now fairly stable and allow previous monetary policy actions to filter through the economy,” he added. (PNA)

CTB/JS/RSM

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