If there were a character in literature who best mirrored the power the United States Federal Reserve wields over the global economy, it would be Gulliver. Though he was a decent chap who meant no harm, his very massiveness presented a danger to all around him – in this case, the Lilliputians of the global economy: emerging markets (EMs).But unlike Gulliver, the Fed is constitutionally prohibited from heeding the cries of Lilliputian economies when crafting interest rate policy. The Fed’s dual remit is narrow and decidedly parochial: Use monetary policy to battle US inflation and maximise the US job market. Preventing chaos in emerging markets simply does not come into it.Yet some EM chaos may beckon. On Tuesday, Federal Reserve policymakers will kick off their first two-day meeting of this year.
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