China likes Fed decision not to taper; global stocks rise on news
WASHINGTON — The Federal Reserve’s decision not to reduce its bond-buying program was “prudent” because the world’s economy remains weak, according to Xinhua, China’s official state-run news agency.
“The Fed’s ‘no taper yet’ decision seems prudent at the moment as the global economic outlook remains gloomy,” the news agency said an English-language commentary Thursday.
Investors worldwide thought it was a good decision as well. Stock markets in Asia and elsewhere surged Thursday on the news.
But there are downsides for emerging markets in the continued monetary stimulus and Fed policymakers need to coordinate efforts to reduce such programs, Xinhua said.
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Leaders of nations with emerging economies, such as China, have complained that signals from the Fed starting in May that it planned to reduce its $85 billion in monthly purchases of bonds have led investors to pull money out of those countries.
The money has flowed to developed nations as interest rates rose in anticipation of a Fed move.
The Fed’s decision Wednesday not to start tapering the purchases this month, which surprised many analysts, could reverse those trends — at least temporarily.
The move was cheered in emerging markets, where stocks and currencies rose in response. The stock market in mainland China was closed Thursday for a holiday.
Still, Xinhua warned that the stimulus efforts from central banks in the U.S., Europe and Japan have increased the price of commodities in emerging nations and caused the value of their currencies to rise.
So policymakers should be clear and careful about how they pull back those efforts, known as quantitative easing, to avoid causing “worldwide market turbulence,” Xinhua said.
The U.S. in particular “should remain sober-headed in making decisions on the quantitative easing, or QE, and always keep a close eye on the medium- and long-term risks,” Xinhua said.
The Fed’s stimulus has helped the global economic recovery from the financial crisis, but “it is no panacea,” the commentary said.
“It is the hope of the emerging markets that the U.S. and other advanced economies could step up coordination and communication with the rest of the world on the timing and steps of the so-called tapering, so that the markets could have reasonable expectations,” Xinhua said.
“By doing so, global financial volatility could also be averted and hopefully negative spillovers could be reduced to the minimum.”
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