PARIS, Sept 19 (AFP): To taper or not to taper? That is the question facing central bankers as they debate when they should unwind the massive economic support measures they deployed last year to prevent a pandemic-induced Great Depression.
"The withdrawal of monetary and fiscal support is inevitable. The key question is timing," said Eva Sun-Wai, fund manager at M&G Investments.
The Fed, the European Central Bank and their peers in Japan, Britain and elsewhere brought down interest rates and unleashed huge asset-buying programmes last year to prevent an economic catastrophe.
The goal of the programmes is to keep the economy humming by making it cheaper for people, businesses and governments to borrow money.
The Fed, which begins a two-day policy meeting on Tuesday, slashed rates to zero at the start of the pandemic in March 2020.
To provide liquidity to the world's biggest economy, it is buying at least $80 billion a month in Treasury debt and at least $40 billion in agency mortgage-backed securities.
The ECB has a 1.85-trillion-euro pandemic emergency purchase programme (PEPP), allowing the bank to buy assets in financial markets such as bonds, making their prices rise and interest fall. The ECB has kept the rate on its main refinancing operations at zero.
Inflation has soared worldwide, raising market expectations that central banks will tighten the money supply to lower prices and prevent economies from overheating.
Central banks in Brazil, Russia, Mexico, South Korea, the Czech Republic and Iceland have raised their interest rates this year.
But the Fed, the ECB and the Bank of England, which also meets this week, have all stuck to their guns so far.
Fed, ECB and BoE officials have insisted that inflation is only temporary and a consequence of prices recovering from drops at the height of the pandemic last year.
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