OCEAN CITY — The Federal Reserve (Fed) is set to end its historic bond purchasing program this month, making the divergence of monetary policies globally ever more apparent. As the U.S. faces the end of an era, Europe and Japan, as well as several emerging markets, are in the throes of monetary easing. Despite a calm ride for the majority of this year, we still see the potential for volatility to pick up in the months ahead, as the Fed navigates normalization of interest rates in a choppy economy.
Last week, two years after beginning Quantitative Easing, the Fed announced the program’s last round of bond purchases. Although Chairwoman Janet Yellen pledged to keep interest rates near zero for a “considerable” period, the unprecedented monetary policy accommodation of the past six years is gradually coming to an end.
According to BofAML Global Research, unless consumer and business spending meaningfully increase and inflation picks up, further easing is likely. As it stands, the central bank’s balance sheet is already more than half of the country’s GDP.