Central Banks Split on Stimulus in 2014 as Fed Tapers

The united stimulus front of central banks is starting to splinter as 2014 dawns.

The Federal Reserve -- soon to be led by Janet Yellen, confirmed today by the Senate as the next chairman -- begins pulling back on its quantitative easing amid stronger U.S. growth, and the Bank of England is trying to cool its housing market. The European Central Bank and Bank of Japan lean toward more monetary action to fight weak inflation. The ECB and BOE both hold policy meetings this week.

The erosion of the mostly synchronized stimulus that supported the world economy for the past six years has investors anticipating a stronger U.S. dollar and weaker Treasuries. That’s not to say the era of easy money is over, as the need to guard against deflation -- as well as the fear of unsettling markets or upending economic expansion -- leaves the Fed and its counterparts pledging to keep interest rates at record lows.

Thiel predicted last month that investors will see the Fed’s decision to taper its $85 billion in monthly bond purchases as the beginning of the end of central-bank support and will push the U.S. 10-year note toward 3.25 percent by the end of this year from 3 percent at 5 p.m. in New York Jan. 3, outpacing the projected rise in Germany’s 10-year bund yield.

(Source: Bloomberg)