Fallout from Fed tightening will be worse than 1994, warns ECB policymaker

BRUSSELS — The spillover effects of the U.S. central bank unwinding its policy stimulus risk being greater now than in 1994, and that episode highlights the importance of clearly communicating exit strategies from expansionary policies, an ECB policymaker said.

The Federal Reserve is expected to start slowly reducing its bond purchases when it meets later this month, beginning to unwind a policy that has helped foster recovery in the world’s largest economy and buoyed financial markets.

“In early 1994, when the U.S. recovery gained strength, the Fed started a tightening cycle and bond markets crashed not only in the U.S. but also around the world,” European Central Bank Executive Board member Joerg Asmussen said on Tuesday.