ING senior economist Teunis Brosens says in the June economic update video for eZonomics that quantitative easing – or QE for short – has been seen by some as a great saviour of the US economy in the aftermath of the global financial crisis.
“True or not… the Federal Reserve may start to diminish QE before the end of this year. By the middle of next year, bond buying would stop altogether,” says Brosens.
Back to normal?
He says QE helped the US housing market by lowering mortgage rates and helping spur consumption. Withdrawing the support could be viewed as a “normalisation” of policy and markets.
Smooth transition required
However, challenges remain.
Says Brosens: “But can the US economy do without ultralow interest rates? The Fed will certainly want to avoid rates rising too quickly and derailing the recovery.
“Bernanke will need to mobilise all his communication skills to manage a smooth transition to more normal monetary policy.”