Powell Knows as Yellen Did How Fed Moves Can Rock Asian Markets

Updated on
  • Speeches examined impact of Fed policy on emerging markets
  • Powell has urged Asia’s governments to stoke domestic demand
Former Atlanta Fed President Dennis Lockhart discusses the nomination of Jerome Powell to lead the Fed.

As Asian investors prepare for a new leader at the Federal Reserve, a look at Jerome Powell’s past speeches should prove reassuring.

"We understand that America’s prosperity is bound up with the prosperity of other nations, including emerging market nations," Donald Trump’s pick to lead the Fed said in a speech four years ago. And in November 2014, he said: "The pursuit of our mandate requires that we understand and incorporate into our policy decision making the anticipated effects of these interconnections."

Such comments suggest a continuation of the current Fed Chair Janet Yellen’s sensitivity to the impact U.S. policy has around the world. In September 2015, when the Fed had been tipped to raise rates, Yellen held back, citing volatility on China’s markets among reasons.

More recently, Powell has said that the challenges posed by the normalization of global financial conditions -- rising interest rates -- will be manageable.

"Jerome Powell is regarded as being dovish and also someone who brings continuity," said Rajiv Biswas, Asia-Pacific chief economist for IHS Markit in Singapore. "This will help to reassure Asian financial markets that the Fed will continue to take a gradual and measured approach to tightening U.S. monetary policy."

Here’s a selection of comments Powell has made on Asia and emerging markets in past speeches:

Oct. 12, 2017, speech titled: ‘Prospects for Emerging Market Economies in a Normalizing Global Economy.’

"Although, EME vulnerabilities have been rising, they are still well below the levels of the crisis-prone years of the 1980s and 1990s." 

"Global monetary conditions are expected to normalize only gradually, as the Federal Reserve and other advanced-economy central banks continue to stress clear communication and transparency."

"The corporate debt situation in EMEs has been worsening, particularly in China, and market reactions to even small surprises can be unpredictable and outsized."

Nov. 18, 2016, speech entitled: ‘The Global Trade Slowdown and Its Implications for Emerging Asia.’

"At this current juncture of the global economy, it is all the more important for emerging Asian economies -- and, indeed, emerging market economies more broadly -- to enhance domestic demand while pursuing prudent policies."

"The cost of external finance to Asian economies has fallen, which should support strong private capital flows to emerging markets. Normally, we would worry about volatility of these flows and how they might exacerbate risks of financial instability, particularly as U.S. monetary policy normalizes."

"But we should also bear in mind that many emerging market economies, particularly in Asia, have improved their macroeconomic fundamentals over the past two decades."

Nov. 14, 2014, speech entitled: ‘Monetary policy accommodation, risk-taking, and spillovers.’

"The pursuit of our mandate requires that we understand and incorporate into our policy decision making the anticipated effects of these interconnections. And the dollar’s role as the world’s primary reserve, transaction, and funding currency requires us to consider global developments to help ensure our own financial stability."

"Overall, accommodative monetary policy seems to have provided significant support for U.S. growth. And, of course, a strong U.S. economy contributes to strong growth around the globe, particularly in the emerging market economies."

Nov. 4, 2013, speech titled ‘Advanced Economy Monetary Policy and Emerging Market Economies.’

"We understand that America’s prosperity is bound up with the prosperity of other nations, including emerging market nations."

"Economic prospects for the United States are importantly influenced by the course of the world economy, and, by the same token, prosperity around the globe depends to a significant extent on a strong U.S. economy. In order for the Federal Reserve to fulfill its dual mandate of price stability and maximum employment, we must take account of these international linkages."

— With assistance by Enda Curran, Yinan Zhao, Toru Fujioka, and Anirban Nag

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