It is a sign of the depth of the Global Financial Recession that despite the US economy having enjoyed recovery since its earliest “green shoots” in 2009 that the Federal Reserve is still stimulating the economy through an asset purchase programme. At the height of this phase of quantitative easing (QE), the US Federal Reserve was buying a staggering $85 billion of assets per month. Money paid as commissions to the financial houses which made the purchases on the Fed’s behalf was supposed to improve liquidity in the US economy, spurring the banks on to lend money to business and so prime the pump of recovery. Probably, it will take the perspective of time to determine how useful an exercise this has been.

Some of the money found its way into emerging foreign markets, so when the Fed announced the “Taper” of its asset purchase programme, some of these markets saw significant falls. The Fed has been reducing its asset purchases in $10 billion blocks – in May, the investment had been scaled back to “just” $45 billion. During its most recent session, the Federal Reserve policy committee has announced that this phase of QE will discontinue next month. Part of this scheme was known as Operation Twist which saw short-term assets (bonds) being swapped out for longer-term ones in a bid to keep the cost of borrowing down.

The Federal Reserve was at pains to stress that whilst short term interest rates, held at zero since 2008, have only one direction to move in it will be “a considerable time” before they do so. The news has been greeted warmly by the markets as a sign of a return to more “normal” business conditions. The Dow Jones hit a new record value of 17220, before falling back. The Dollar is continuing a Bull run against the Yen which has seen it rise to a level last seen in August 2008 – a run which started (in earnest) in early August.