Not So ‘Decoupled’ After All, Emerging Markets Watch the Fed
For a while central banks in Indonesia, Brazil and elsewhere seemed free to do their own thing. No longer.
Turns out Indonesia still has to keep an eye on Washington.
Photographer: Graham Crouch/Bloomberg
Chairman Jerome Powell wants us to know that the Federal Reserve isn’t to blame for the sell-off in emerging markets. Perhaps it isn’t. But the Fed has been spotted in the vicinity.
The connection between emerging markets and the U.S. economy never “decoupled,” as is popularly observed. The relationship merely evolved. From extreme examples like Argentina, where interest rates soared to 40 percent, to more benign scenarios like those in Brazil and Indonesia, which may merely cease cutting or start to claw back some cuts, investors are scrambling to adjust to a changed environment.