On Dec. 18, 2013, the U.S. Federal Reserve (the Fed) decided to reduce the pace of asset purchasing from $85 billion per month to $75 billion. Five years since the recession began, this is an important turning point for the U.S. unconventional monetary policy. Recent economic data have been optimistic, encouraging Fed officials to take action. In addition, the budgetary battle between President Obama and the Senate and House of Representatives was temporarily settled in December 2013, which will significantly reduce policy uncertainty and promote economic growth.

The U.S. economic recovery has been moderate and steady. If the current trend continues, its monetary policy will return to normal within the next few years. Policy adjustment will depend on the recovery of employment and the inflation rate.

The U.S. economic recovery and QE tapering has important implications for the world, and this has been widely debated in China recently. The spillover mechanism is complicated. I will analyze the mechanism from the trade, financial and national wealth channels.

(1) Trade channel: The United States is the biggest consumption market in the world. Its economic recovery will increase its demand for goods from other countries. In November 2013, exports from China to the U.S. increased 17.7 percent year on year, the highest increase since June 2012. The U.S. economic recovery could have positive effects on emerging countries, including China. QE tapering could make the U.S. dollar stronger, which would strengthen its purchasing power and import demand.

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