UPDATE 1-Fed talk over QE exit could fan volatility, warns IMF

06/25/2013

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PARIS, June 25 (Reuters) - The U.S. Federal Reserve's talk of exiting its stimulus programme could trigger volatility on global markets, the IMF's chief economist warned on Tuesday, adding that recent movements had been exaggerated.

Olivier Blanchard said the problem was that the rules for exiting quantitative easing were not clear and the Fed could not make commitments in terms of quantities.

Fed Chairman Ben Bernanke said last week that the central bank expected to reduce its bond-buying later this year and halt the stimulus programme altogether by mid-2014 if the economy improves as forecast.

Global equities, bond prices and commodities tumbled as a result, also hit by a cash crunch in China.

"This is an economy that is recovering, the issue is around the speed of exit from QE," Olivier Blanchard told a meeting of the Institute of International Finance in Paris.

"Conceptually it 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."

He added: "The Fed has no clue what will happen when it starts selling assets ... So it cannot make any commitments in term of quantities."

A late recovery in Chinese stocks and comments by top Federal Reserve officials that eased fears of an imminent end to its stimulus lifted shares and bonds off their lows on Tuesday and cooled a rally in the dollar.

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. (Reporting by Ingrid Melander and Steve Slater; Writing by Natalie Huet; Editing by Catherine Evans)



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