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Fed Finds Success at Home Spreads Pain Abroad as Markets Tighten

  • Emerging nations take the hit as financial conditions stiffen
  • U.S. economy set to power ahead as fiscal stimulus kicks in
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Federal Reserve Bank of Cleveland President Loretta Mester discusses inflation expectations and the Fed’s rate path. Source: Bloomberg

The Federal Reserve is finally succeeding in tightening financial conditions, more than two years after it began raising interest rates. The only trouble is that the economic impact is being felt more abroad than in the U.S.

Rising Treasury bond yields and a resurgent U.S. currency have shaken emerging markets as investors have reassessed the creditworthiness of nations that loaded up on dollar-denominated debt. The U.S. economy, in contrast, looks set to power ahead, with economists forecasting average annual growth of around 3 percent in the final three quarters of this year, helped by a big dollop of fiscal stimulus.