Federal Reserve Bank of San Francisco President John Williams said the turmoil in emerging markets hasn’t altered his forecast that the U.S. economy will improve this year.
“We shouldn’t focus too much on the short-term developments in markets,” Williams, who doesn’t vote on policy this year, said today in an interview on Fox Business Network. “Monetary policy really does need to have a medium-term focus” on the outlook for employment and inflation, he said.
Stocks fell today, pushing the Standard & Poor’s 500 Index to a third weekly loss, and Treasuries rose amid a slump in emerging-market currencies and weaker corporate earnings. On Jan. 29 the Fed cut its bond-purchase program to a monthly pace of $65 billion from $75 billion and didn’t mention emerging markets in its statement.
About $1.8 trillion has been erased from the value of equities worldwide this month. The MSCI Emerging Markets Index fell 0.1 percent as of 3:29 p.m. in New York, leaving the gauge down 6.7 percent in January.
Williams said the Fed is monitoring markets “very closely” and that the strategy of reducing bond purchases in measured steps should “remove some of the uncertainty around global financial markets.”
Dallas Fed President Richard Fisher said the Fed will aid other economies by spurring U.S. growth and focusing on its mandate to ensure full employment and stable prices.
“If we’re strong, others will benefit from it,” Fisher, who votes on monetary policy in 2014, said today in a speech in Fort Worth, Texas. He rejected criticism of the asset purchases coming from other nations, saying that the Fed’s programs to lower borrowing costs helped the global economy.
“Those countries that used it, cheap money, to effect, like any business, structural change, will do fine,” Fisher said. “Those that used it to consume, like an individual who borrows on their credit card just to consume and not to build, will suffer, and we’ll see a re-alignment of how their currencies and how their economies are valued in the marketplace.”
India central bank Governor Raghuram Rajan warned yesterday of a breakdown in global policy coordination after the Fed further cut stimulus, weakening emerging-market currencies from the rupee to the Turkish lira.
Rajan, a former chief economist at the International Monetary Fund, called for greater cooperation among policy makers. The Fed’s Jan. 29 statement made no mention of developing economies.
Williams said Fed officials were correct to press on with a reduction in bond purchases even after a report of weak payroll growth last month.
“There’s a lot of indicators of payroll employment in the job market and most of those continue to show solid improvement,” he said.
The U.S. economy added 74,000 jobs in December, the worst month since January 2011, according to the Labor Department’s Jan. 10 report.
Fisher said he also favored the decision to pare the central bank’s unprecedented asset buying. “I would like to see it go to zero as soon as is practicable,” he said.
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