The US Fed’s plan to end its quantitative easing program

The chairwoman of the US Federal Reserve, Janet Yellen, said today (the 20^th September) that the US Federal Reserve would shrink its balance sheet to reduce its asset holdings. It will speed up the rate of the global ending quantitative easing, followed by the plan to end the quantitative easing revealed by the president of the European Central Bank, Mario Draghi.

Of course, to end the quantitative easing programs cannot be done within a few months, it will takes several years, especially when multi-trillion dollars worth assets are currently held by the US Federal Reserve. Similarly, the European Central Bank also needs several years to end its quantitative easing program.

During the next several years, the central banks in many major economies tend to cut their asset holdings and raise their base rates. Today’s Fed’s announcement rallies the US dollar to appreciate, this means the Forex market expects that the end of the quantitative easing program will bring down the inflationary pressure, which helps to appreciate the exchange rate. In addition, the rally of the US dollar may show that the financial sector still holds confidence about the US economy after the end of the quantitative easing program.

In addition, many of other countries which are still having expansionary monetary policies may also follow the paths of the European Central Bank and the US Federal Reserve to start cur their expansionary monetary policies.