For emerging markets, a more fearful Fed is a less frightful one

SPARE A THOUGHT for emerging markets. When America’s economy falters, they often share the pain, because America is an indispensable market for their goods. But when America’s economy prospers, they can also suffer, because the Federal Reserve will raise interest rates, lessening demand for emerging-market assets.

This catch-22 was vividly illustrated in 2018. America’s economy expanded robustly. But this boost to global demand was overshadowed by the Fed’s response to it: four rate increases that wreaked havoc on overvalued currencies and overstretched economies in the emerging world. An index of emerging-market equities compiled by MSCI fell by almost 17% over the year.

Emerging markets were therefore relieved by reassurances offered by Jerome Powell, the Fed’s chairman, on January 4th. He emphasised that American inflation remained “muted”, that the Fed will be “patient”, and that it will listen “sensitively” to...

via The Economist: Finance and economics Business Feeds

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