By Ingrid Melander
PARIS, June 25 Markets have overreacted to the
U.S. Federal Reserve's plans to stop buying bonds but part of
the problem is a lack of clarity over how it will be done, the
International Monetary Fund said on Tuesday.
"The Fed has no clue what will happen when it starts selling
assets," IMF Chief Economist Olivier Blanchard told a meeting of
the Institute of International Finance in Paris. "So it cannot
make any commitments in term of quantities."
He was speaking less than a week after the U.S. central bank
set off a cascade of selling in global markets by saying it
expected to reduce its bond-buying later this year.
Fed Chairman Ben Bernanke also said that the central bank
expected to halt the programme, known as quantitative easing
(QE), altogether by mid-2014 if the U.S. economy improves as
Two top Fed officials, however played down on Monday the
idea of an imminent end to monetary stimulus.
Blanchard said what was being seen now was the Fed trying to
find a way of giving rules to markets in an area where they do
not exist yet.
"Conceptually it (QE exit) is not fundamentally very
difficult, but there is a problem of communication on how you do
it, which is going to create volatility. But the volatility we
have seen in the past week is exaggerated," Blanchard said.
Global equities, bond prices and commodities, boosted for
months by major central banks' stimulus plans, tumbled after the
Fed's comments. They were also hit by a cash crunch in China
Blanchard added that the U.S. economy was recovering and
talk of a QE exit was therefore expected. "The issue is around
the speed of exit from QE," he said.
Earlier this month, the International Monetary Fund
recommended that the Fed stick to its bond-buying programme at
least until the end of the year.