“Wisdom preacheth abroad,” says King Solomon in Proverbs 1:20, reminding us that actions taken in one place can have consequences far away. At a recent meeting of Group of 20 financial leaders in Sydney, one topic of concern was the Federal Reserve’s stimulus plan and the impact that plan to boost the economy at home is having on other markets around the world.
The Federal Reserve may be optimistic about the outcomes of its decision to taper down the ongoing bond buying stimulus program, but the rest o the world isn’t so sure. Among issues on the table at an upcoming meeting of the world’s money policymakers in Sydney are concerns that in deciding to scale back on its massive program, the Fed ignored the potential impact on emerging markets around the world.
The stimulus program officially known as Quantitative Easing round 3 has been in taper-down mode since the start of 2014, as the Fed pressed forward with plans to scale back on its huge campaign to buy up bonds and mortgage backed securities in an effort to jump start a sluggish post-2008 economy. In the last couple of months the Fed has slashed a total of $20 billion worth of those securities from its monthly buyup, and more tapering is expected if the economy continues to show signs of growth.
The Fed’s move impacts not just the US economy, but world markets too, since QE3 affected interest rates and the value of treasury bonds an other securities in global financial dealings. And those shifting rates, coupled with the fluctuations of the dollar and other currencies, have a direct effect on the competitiveness of emerging markets in many parts of the world.
Now as leaders of the Group of 20 gather in Sydney to discuss world monetary policies, they’re also going to be dealing with fallout from the Fed’s decision to taper the stimulus in emerging markets including India and South Africa, both of which complained openly about the Fed’s indifference to the world impact of the decision.
The immediate impact of the taper-down is higher interest rates. And although experts expert more growth in the global economy this year than in the past two years, those emerging markets continue to struggle with currency issues as well as the health of their own domestic markets and see the US decision as unilateral and high handed.
For that reason, G20 representatives are calling for better coordination of efforts to frame a truly global monetary policy statement that reduces ambiguity and reflects an awareness of the large-scale effects of major domestic decisions.
The long-term outlook for the stimulus isn’t clear, though the Fed’s new leader is committed to the draw down for now. In eh meantime, the unfolding story of the world’s monetary markets is one to watch for investors following Jason Hartman’s strategies for building wealth. (Top image:Flickr/gorfor)
Colitt, Raymond and Michael Heath. “G-20 Draft Urges Global Monetary Policy Clearly Communicated.” Bloomberg News. Bloomberg.com 20 Feb. 2014
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