Fed faces major challenge in tapering policy

The incoming president of the US Federal Reserve, Janet Yellen, gave a strong defence of the central bank’s very loose monetary policy before a Senate Banking Committee hearing last week.

The Fed has kept its key interest rate at the historically low target range of 0%-0.25% since Dec 2008.

It has also engaged in asset purchases, known as quantitative easing, to lower long-term interest rates. The latest Fed asset purchase programme, amounting to $85bn (€62.8bn) per month, has been going on for over a year now.