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Nov 06 2014

Life After Death of QE?

With an end to the Fed’s quantitative easing, the key questions are when and how fast they will raise rates. The latest FOMC minutes only increased the uncertainty surrounding the timing of rate increases, with members expressing more concern about the effect on the U.S. economy of the global slowdown first flagged by ECRI in the summer. It is clear that Chairman Yellen has positioned the Fed so that the anticipated 2015 Fed rate hike can be put off if need be.

In this context, ECRI has just completed an in-depth analysis of the relationship between U.S. business cycle expansions and growth rate cycle upturns with those in other major developed economies, as well as the historical patterns of Fed rate hikes during earlier global downturns.

Today, major developed economies are experiencing asynchronous expansions to a degree not seen since the 1990s, while international growth rate cycles have become increasingly synchronized. As a result, this study provides important implications for the timing and magnitude of Fed rate hikes.

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