Top Fed official: QE could be more aggressive than market fears

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The influential head of the New York Federal Reserve has said the central bank’s bond-buying scheme could be more aggressive than much of the market fears.

Fed chairman Ben Bernanke spooked the markets last week, when he indicated that the bank’s $85bn-a-month quantitative easing effort could be slowed in the second half of the year if the US continues to show signs of improvement.

The resultant sell-off hit most assets, including equities, bonds and gold, as investors contemplated the effect of withdrawing the stimulus that has helped to keep markets afloat since the financial crisis.

However, Federal Reserve Bank of New York president William Dudley stressed that the tapering timeline suggested by Bernanke depends on the US economic outlook, not any set calendar dates.

“Economic circumstances could diverge significantly from the [Federal Open Market Committee’s] expectations,” he told reporters.

“If labor market conditions and the economy’s growth momentum were to be less favourable than in the FOMC’s outlook – and this is what has happened in recent years – I would expect that the asset purchases would continue at a higher pace for longer.”

Earlier this week, Dallas Federal Reserve president Richard Fisher told the Financial Times that the “feral hogs” of financial markets will not be able to bully the central bank into shelving its QE tapering plans.