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Should the Fed Care about Emerging Markets? - Real Time Insight

Posted: 2/19/2014 4:49:00 PM
Referenced Stocks: BOND;GLD;SPY

Minutes of the Federal Open Market Committee (FOMC) meeting held in January show a broad support for tapering. Only a few members had concerns about dialing back monthly asset purchases.

Here is what these minutes revealed about some important issues:

On Tapering

Many participants believed that the Committee's decision to start tapering in December had not resulted in an adverse market reaction.

On Forward Guidance and Raising Rates

FOMC members agreed that with the unemployment rate approaching 6.5%, it would soon be appropriate for them to change their forward guidance.  

They had earlier said that the Fed funds rate would stay at near zero levels until the unemployment rate reaches 6.5%, as long as inflation remains below 2%..

A few participants even raised the possibility that it might be appropriate to increase the federal funds rate relatively soon. 

On Emerging Markets

The committee observed that recent volatility in emerging markets appeared to have had only a limited effect to date on U.S. financial markets.

In her first appearance before the congress, the new Fed chairperson Janet Yellen said that the "Fed was watching closely the recent volatility" but "these developments do not pose a substantial risk to the US economic outlook".

This issue of impact of tapering on emerging markets is likely to front and center in the G20 meeting in Australia this weekend.

Many emerging  nations' central banks have complained about tapering. India's central bank governor said that "international monetary co-operation had broken down".

Since there was nothing new in minutes, my RTI question relates to Fed's policy on emerging markets.

Do you think the Fed is right in ignoring emerging markets? 

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