Stock markets have been trending downwards over the last few days as news is due around 7pm UK time tonight as the Federal Open Market Committee (equivalent to Bank of England Monetary Policy Committee) on what the Federal Reserve’s plans are with regard to scaling back its $120 bn per month quantitative easing (QE) programme.
What is QE?
It is when central banks buy back government debt to release cash liquidity into the banking system. Government’s borrow money every week issuing debt notes in the form of government bonds or gilts as they are called in the UK. QE is where they are buying back or paying off early, older more expensive debt. In the US, their QE programme consists of government bonds and mortgage funding debt.
All through the pandemic, the Fed has been pumping huge sums of money into the economy. As has the European Central Bank (ECB), the Bank of Japan and Bank of England,
The US stimulus package is by far the biggest in the World, so whilst markets have been expecting a tapering back of stimulus for many months, now is the crunch time. The big draw to this announcement is whether it will be a simply policy statement suggesting that is what they intend to do or whether specific dates are given is the key to markets over the next few days. If date are given, the $ will strengthen and if not, markets may perceive the Fed is still nervous about recovery.