Investors await U.S. Fed's decision on stimulus tapering
Larry Summers has pulled out of the contest to succeed Ben Bernanke as the chairman of the U.S. Federal Reserve.
After the White House confirmed President Obama accepted the decision by the former Treasury Secretary on Sunday the U.S. dollar weakened and stocks and bond rallied in Asia on hopes that Bernanke's successor, unlike Summers, will slowly wind down Fed's easy monetary policies.
Summer's withdawal strengthens the chance for current Fed vice chairwoman Janet Yellen, the other leading candidate, to replace Bernanke.
She is believed to be less inclined to quickly reverse quantitative easing which might rattle the global markets.
Such cautious apporach in reducing large-scale asset purchases will have a positive effect on the emerging markets, given that investors had left the market in fear of quick withdrawal of the stimulus.
Summer's surprise decision came shortly before Fed policymakers meet on Tuesday and Wednesday to decide the timing and extent of dialing back the central bank's monthly government bond purchases from the current pace of 85 billion U.S. dollars.
The purchases are aimed at holding down long-term interest rates, thus increasing borrowing and investing in order to create more jobs and lower unemployment.
Despite the assurances that the stimulus would be withdrawn gradually and that interest rates will not be raised any time soon investors are still uneasy.
If yields shoot higher even after this week's Fed meeting, confidence could be hit and the already feeble U.S. recovery could stumblewhile investors in emerging markets could further head for the exit.
The Fed each month buys 45 billion dollars in Treasury bonds and 40 billion in mortgage backed securities and the U.S. monetary policy largely determines global capital flow.
Ji Myung-kil, Arirang News.
Reporter : email@example.com