The US Federal Reserve is expected to call time this week, unless it brings some major surprises, as far as its government bond purchases program is concerned.
James Bullard, head of the St. Louis Fed, has recommended that sticking with government bond purchases for a few more months would leave the policymakers with more time for better assessing a deteriorating inflation outlook.
Analysts say that will calm the markets from an aggressive sell-off ten days ago, but the economists are expecting the Fed to stop its money flow on schedule on Wednesday and give accompanying assurances that it will act as a backup in case a global downturn threatens its economy.
Merrill Lynch, an economist at Bank of America, wrote in a note: “We remain optimistic that the recent upshift from 2 percent to 3 percent growth will be sustained.”
It may well be that the Fed maintains the key interest rates virtually at zero for a longer duration amid the dipping energy prices and the dearth of wage growth. Meanwhile, the investors have already pushed the expectations for an initial rate increase back several months to late 2015.
The economic slowdown in China and the ongoing euro zone crisis have become the center of global economic concern.
The stress test results on European banks, which were announced on Saturday, showed that as many as 25 European banks had failed as of the 2013-end, but most of them have succeeded in repairing their finances.
The European Central Bank (ECB) has staked its repo on this practice, hoping that it will bring a line under years of financial and economic chaos.
Erik Nielsen, chief global economist at Unicredit, said, “Thinking that lending somehow can lead GDP is an illusion, and I don’t know how that has somehow crept into the policy debate. Businesses need to believe in an increase in the demand for their products before asking for credits, and now that external demand growth is no longer there, this is when the euro zone needs demand stimulus.”
The inflation data of euro zone in the coming week will show whether the deflation threat has eased at all. The accord is for the headline rate to have increased to 0.4 percent in October but analysts say this is tend to bring little comfort.
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