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Prospects for tighter monetary policy in Europe and other countries could pose a fresh problem for the Federal Reserve when it meets next week to ponder its plan to reduce its $4.2 trillion bond portfolio purchased after the 2008 financial crisis.
The Fed bought U.S. Treasuries and mortgage-backed securities (MBS) for about six years in a program known as "quantitative easing" which kept interest rates at record lows to spur borrowing and economic recovery.
June - Meeting - Year - Interest - Rates
But at its June meeting this year, as well as raising interest rates for the third time in six months, the Fed also announced a plan to begin by letting $6 billion a month in Treasuries mature without reinvestment and to increase that amount at three month intervals up to $30 billion.
Similarly, the Fed said it would run down its agency debt and mortgage backed securities by $4 billion a month until it reaches $20 billion.
Central - Bank - ECB - Year - Bond
Now, the European Central Bank (ECB) also appears likely to decide later this year on when to scale back its monthly bond purchases. When ECB President Mario Draghi first hinted at the prospect last month, world bond yields rose sharply for a while.
Moreover, Canada's central bank raised interest rates for the first time in seven years this month, and the Bank of England is expected to raise rates next year to combat rising inflation.
GLOBAL - TURNING - POINT - IN - MONETARY
GLOBAL TURNING POINT IN MONETARY POLICY ?
The Fed led the way in tightening monetary policy as the global economy recovered from the 2008 recession but must now determine how plans by other central banks' plans may affect their own policy.
Economy - Fed - Risks - Economy - Move
While a stronger European economy has been welcomed by the Fed, lessening risks to the global economy, a move by major central banks to all tighten monetary policy simultaneously has not been seen for a decade.
"The effects of ECB tapering are...
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