Prospects for tighter monetary policy in Europe and other countries could pose a fresh problem for the Federal Reserve when it meets next week to ponder its plan to reduce its $4.2 trillion bond portfolio purchased after the 2008 financial crisis.
Now, the European Central Bank (ECB) also appears likely to decide later this year on when to scale back its monthly bond purchases. When ECB President Mario Draghi first hinted at the prospect last month, world bond yields rose sharply for a while.
Moreover, Canada's central bank raised interest rates for the first time in seven years this month, and the Bank of England is expected to raise rates next year to combat rising inflation.
When Fed policymakers meet on July 25-26 they will need to decide a start date for reducing their bond holdings or leave more time to evaluate what Fed Governor Lael Brainard recently cited as a possible "turning point" in global monetary policy that may affect economic growth.
The Fed's plan to reduce its portfolio may well push up longer term bond yields, driving up long term borrowing rates for business, and lead to higher mortgage rates for the housing industry.
Fed Governor Brainard has already pointed out how hard it may be to sort out what it will mean if the ECB starts to scale back its bond purchases at the same time the Fed is both raising short-term interest rates and shrinking its balance sheet.
Reference: Reuters
Read more: http://www.reuters.com/
Thai
Eng