Date
25 September 2017
The Federal Reserve appears unfazed by the strong US dollar and aggressive policy actions by foreign central banks. Photo: Bloomberg
The Federal Reserve appears unfazed by the strong US dollar and aggressive policy actions by foreign central banks. Photo: Bloomberg

Fed wary of economic turbulence abroad

US Federal Reserve officials said economic turbulence overseas posed a significant risk to the US economy when they met in December, but also noted the policy makers in Europe and elsewhere were ready to respond with measures to stimulate growth, the Wall Street Journal reported.

“While some participants had lowered their assessments of the prospects for global economic growth, several noted that the likelihood of further responses by policy makers abroad had increased,” according to minutes of the Fed’s policy meeting on Dec. 16-17.

The Fed released the minutes of the meeting on Wednesday after a three-week delay.

During the meeting, the Fed officials agreed to signal that US interest rates are likely to rise in 2015 despite their concerns about slow growth abroad.

The newspaper said the Fed’s assessment of overseas risks is important as the European Central Bank is set to hold a policy meeting on Jan. 22. The ECB is expected to agree to launch a new bond-purchase program to boost the eurozone economy.

However, the report said, market anticipation of higher rates in the US coupled with new money-printing measures by the ECB is putting upward pressure on the US dollar. That in turn holds down the already-low US inflation and could spur capital flows to the US that distort markets.

Fed officials don’t appear to be worried. “Some of the movements we’ve seen in exchange rates reflect very aggressive policy actions in Japan and anticipation of strong policy actions in Europe, which I think are very healthy,” John Williams, president of the Federal Reserve Bank of San Francisco, told reporters on Monday.

“A strong Japanese economy, a strong European economy—that’s great for them. That’s great for the global economy. In the end, that’s great for the US,” he added.

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RC/CG

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