The push-back came on Fed Chairman Ben Bernanke's last day on the
job and two days after the U.S. central bank reduced the pace of its
huge asset purchase program. The Fed made the move on Wednesday
despite a bruising selloff in emerging markets that was prompted in
part by the prospect of less U.S. monetary support.
With the turmoil in currencies and stocks spreading into more
emerging markets on Friday, Fed officials, addressing the rout for
the first time, offered no hint the sell-off would influence their
policy stance unless the U.S. economy were threatened.
But in Mumbai, Reserve Bank of India Governor Raghuram Rajan said
the United States "should worry about the effects of its policies on
the rest of the world."
"We would like to live in a world where countries take into account
the effect of their policies on other countries and do what is
right, rather than what is just right given the circumstances of
their own country," he said at an event on organized by The Times of
Financial markets in India, Turkey, Argentina and elsewhere have
boomed in recent years as the Fed's measures to bolster economic
growth at home — including asset purchases and ultra-low interest
rates — encouraged investors to seek higher returns in emerging
As the Fed began to talk of unwinding its policy last year, the
money began to flow back out, a trend that ramped up again in the
last two weeks on signs that China's economy is slowing.
Rajan, a former chief economist at the International Monetary Fund,
is well respected by central bankers globally as being among the few
who spoke out about signs of trouble in markets well before the
2007-09 financial crisis set off the Great Recession.
His comments were echoed by the IMF, which on Friday called on
central banks to ensure that a financial market rout in the
developing world does not lead to an international funding crunch.
"The turbulence also underscores the need for vigilance among
central banks over liquidity conditions in international capital
markets," an IMF spokesman said.
The pressure, however, is unlikely to dissuade the Fed from ramping
down its asset purchases by later this year unless the turbulence
starts to derail recent momentum in the U.S. economy. Fed
policymakers did not mention emerging markets in a statement on
Wednesday, when they unanimously decided to trim bond-buying by
another $10 billion per month.
Indeed, all 70 economists polled by Reuters expect the central bank
to keep paring the purchases at that rate at subsequent meetings,
shuttering the program before year-end.
"So far I don't see anything that's happened in the last month
around markets as fundamentally shifting an improving outlook for
the U.S. economy and improving labor markets," San Francisco Fed
President John Williams said Friday on Fox Business television.
[to top of second column]
Williams, a centrist, said fellow policymakers discussed emerging
markets at their meeting this week, but added the Fed should not
focus too much on "short-term developments.
Speaking in South Africa, one of the countries hit by the recent
turmoil, Kansas City Fed President Esther George backed the
withdrawal of accommodation and warned that easy U.S. policies will
only work to distort exchange rates, capital flows, and other
Richard Fisher of the Dallas Fed went even further, saying countries
like Poland and Mexico that used the influx of funds to restructure
their economies will do well as the Fed reduces accommodation.
Others, such as Brazil, will have a hard time, he said in Fort
The debate, which amplified a day before Fed Vice Chair Janet Yellen
is to succeed Bernanke, highlights how central banks and governments
can get whip-sawed by the trillions of dollars of investment seeking
easy returns. In the so-called cross-border currency trade,
investors borrow in countries with lower yields and invest in those
with higher yields.
The IMF spokesman said some emerging market countries need to take
urgent action to improve their economies.
Turkey and South Africa, two of the hardest-hit in recent days,
responded by raising interest rates this week to help support their
currencies. The Reserve Bank of India also tightened monetary
policy, saying the action was aimed at pushing down high consumer
Rajan, who took charge at the Reserve Bank of India last September
during the country's worst financial crisis since 1991, complained
on Thursday that global monetary policy coordination had broken
"Industrial countries have to play a part in restoring that, and
they cannot at this point wash their hands off and say: 'We will do
what we need to, and you do the adjustment you need to,'" he said on
Bloomberg India TV.
(Additional reporting by Rafael Nam and
Subhadip Sircar in Mumbai, Ann Saphir in Fort Worth, Texas, and Anna
Yukhananov and Jason Lange in Washington; writing by Jonathan
Spicer; editing by Meredith Mazzilli)
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