Experts ponder implications of Fed’s QE halt

Impact on China expected to be minimal, developing nations face uncertainty

The US Federal Reserve announced in a statement released Wednesday that it would end its bond-purchasing program, known as quantitative easing (QE), by the end of October. At the height of this easy-money scheme, the Fed was shelling out $85 billion per month on bonds as it worked to keep financial markets laden with enough liquidity to stoke job creation and economic activity. What impact will the Fed's latest decision have on global markets? Will it apply further pressure on China's own cooling economy? The Global Times interviewed three experts to get their views on this issue.

Zhang Yugui, dean of the school of economics and finance at Shanghai International Studies University

The Fed - which is actually the world's central bank - announced the end of its QE program Wednesday. This move signals the start of a new phase for the world economy.

The unprecedented scale of the US QE program demonstrates the extent to which the world's largest economy suffered during the slowdown which followed the financial turmoil of 2008. It also illustrates the stark reality of US hegemony.

The European Union, the UK and Japan all followed the US by rolling out easing programs of their own, all of which had limited impacts on the world economy. Abenomics has proven unsuccessful, and the Japanese economy still isn't out of the woods. But QE in the US is another story. No country in the world could stop its massive asset-purchasing scheme launched in 2009. Some $3 trillion were injected into the market during the program's first three rounds, bring uncertainty to the rest of the world.

Policies by superpowers like the US have great spillover effects, especially within the context of economic globalization. The QE launched by the US manipulated the global monetary order. Yet, the affects suffered by China were not as big as we had originally expected. As for emerging markets, the top priority is to focus on their own monetary policies, rather than those of the Fed.

Liu Shengjun, executive deputy director, CEIBS Lujiazui Institute of International Finance

Now is the right time for the Fed to end its QE program before it becomes too late. On the one hand, US employment conditions have improved and joblessness is below 6 percent. On the other hand, stock indices are near record highs and housing prices continue to rise. The Fed should end QE now to guard against the formation of asset price bubbles in the US market. It should also raise interest rates sooner rather than later, although a specific time frame will be determined by upcoming inflation indicators.

Over the short term, the end of the Fed's bond-purchasing program will have an adverse impact on US market liquidity. However, it is necessary for the Fed to take action now that the country's economic health has improved.

Because of strict capital controls, the end of the QE program is unlikely to trigger a wave of capital outflows from China. Other developing nations though will have to cope with capital drains over the short term. Conditions in the global economy will ultimately dictate the direction of international capital movements.

Liu Xuezhi, research fellow at Bank of Communications' financial research center

The Fed has achieved the goal of its QE program, considering that the US unemployment rate fell to 5.9 percent in September, the lowest since July 2008, according to media reports.

The Fed has been talking about ending its QE program since the end of last year. Its latest step should not surprise anyone in the market.

What many are focused on now though is the Fed's timetable when it comes to raising interest rates.

The consensus view seems to be that this will happen in June 2015. The hawks and the doves within the US government have yet to reach an agreement though, making it hard to pin down a specific date.

International capital flows will accelerate with the end of the QE program. This will be most noticeable in emerging-market countries. Southeast Asia and South America, for example, could experience substantial outflows.

The Fed's recent policy move will have little influence over the People's Bank of China (PBC). Local economic conditions will obviously have a much larger influence over decisions made at China's central bank. It's possible that the PBOC will cut interest rates if the domestic economy continues to slow.