Fed Decision On Stimulus Slowdown Looms
The Federal Reserve is expected to confirm later that it will start to wind down its massive stimulus effort that has pumped $2.8trn (£1.76trn) into the US economy.
Quantitative easing, or QE for short, is credited with helping the US economy overcome the deepest slump since the Great Depression but opinions are split on whether the recovery has been secured.
In the US, the flood of cheap money lifted stock prices to record highs and put a floor under what had been a reeling housing market while Fed chairman Ben Bernanke says it has also aided cutting unemployment and averted a damaging cycle of deflation.
But while the scale of the bond-buying since the financial crisis has boosted recovery by driving interest rates to record lows, it has left financial markets addicted to the low-cost credit and investors worried about the effect of turning off the taps.
The Fed's QE programme has been felt worldwide.
Stock market values have swung wildly since May when the idea of tapering, or slowing down the monetary stimulus, was first floated.
The money helped push banks and other investors towards risky investments in emerging markets, where the prospect of tapering has resulted in huge withdrawals from currencies and stocks.
Last month, the Indian rupee fell to its lowest rate against the dollar to become the weakest currency in Asia - dipping 19% since the start of the year.
The threat of tapering has even been felt in the UK, where long-term market rates have risen steadily over the summer.
It means the effects of the Fed's bond buying has been controversial both at home and abroad because while QE has helped oil the cogs of world recovery, critics say it was artificial and therefore too risky.
Mr Bernanke has signalled he will look to reduce QE this year and end it next year, but keep short-term rates low for many months afterwards in order to continue to encourage investment and hiring.
Analysts suggest the market has already factored in a $5-$15bn monthly reduction in the scheme.
On Tuesday, the Dow Jones closed higher on greater investor confidence that the US economy could withstand the expected reduction of Federal Reserve bond purchases.
In early trading on Wednesday, the FTSE 100 rose cautiously in early trading on the back of that assessment - along with the other major European markets.