Fed tapering: Doubts resurface again

Wall-Street

The Federal Reserve cannot ignore the alert warning and, yet, reversing its current policy might lead to outright confusion. Sticking to a wait-and-see stance, buying time until a clearer picture emerges seems the obvious way out for the Fed.

Investors are not endowed with similar patience. Their quick reaction has knocked down interest rates and inflicted a blow to risk appetite. Should sluggish performance raise further doubts over the coming months, its wave shocks might unsettle the emerging economies and sap European efforts to ensure recovery is back on track. Monetary easing would fail to soften the exchange rate, thus placing all the burden on real adjustment.

The virtuous circle the ECB intends to build up risks running out of steam. With cheap money close to the limit, there is little room for providing extra stimuli. Only unconventional measures implemented in a forceful way could save the day. One doubts Draghi and his colleagues have the ability and will to follow that road up to the end. No wonder the markets are losing their faith in the bold package announced early this month.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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