IMF’s Lagarde Sees Tapering Spurring Further Market Volatility

The dialing back of Federal Reserve stimulus will cause further ructions in financial markets even as it marks an improvement in the global economy, International Monetary Fund Managing Director Christine Lagarde said.

“The tapering that we see is a result of the significant improvement of the global economy, but particularly the U.S. economy, and that in and of itself is positive,” Lagarde said today in an interview following a meeting of Group-of-20 finance chiefs in Sydney. “There will continue to be volatility on the markets as a result of this tapering.”

The U.S. central bank’s decision to reduce its monthly bond-buying program to $65 billion from $85 billion followed signs of improvement in the world’s largest economy. The move has helped to roil markets from Turkey to South Africa and Argentina, spurring investors to sell off emerging-economy currencies, stocks and bonds, and prompting emergency measures from governments and central banks.

The G-20 forum provided emerging-market economies with an opportunity to share their concerns about policy changes being implemented in advanced economies, including the Fed’s scaling back of quantitative easing, Lagarde said.

The group said monetary policy should remain accommodative for now in many advanced economies and pledged a coordinated push to boost growth over the next five years, according to a statement from finance ministers and governors released after this weekend’s meeting. The timing of stimulus pullback will depend on the outlook for prices and growth, they said.

The official communique includes a “recognition that there are spillover effects to be had from the policy decided in one country vis-a-vis the rest of the group,” Lagarde said.

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