Skip to main content

pa3808c.jpg Paul Lachine
English

The Taper Wolf at the Door

Last spring, the mere possibility that the Fed might reduce its purchases of long-term assets – the so-called “taper” – sent market interest rates in the US soaring and currencies in several emerging countries plummeting. Following an unexpected reprieve, investors are again asking what will happen when the Fed follows through.

SANTIAGO – Last spring, US Federal Reserve Board Chairman Ben Bernanke made a small announcement that had big consequences. The mere possibility that the Fed might reduce its purchases of long-term assets – the so-called “taper” – sent market interest rates in the United States soaring and currencies in countries like Brazil, Turkey, and India plummeting.

Unexpected backtracking by the Fed in September gave markets a reprieve. But now investors are again asking what will happen in emerging markets if and when the big bad taper wolf shows up.

As always with economists, there are two schools of thought. Optimists claim that most emerging economies are well prepared to withstand the shock, because their dollar debts are lower than in the past, while their fiscal positions are much stronger. Pessimists claim that in the absence of well developed local financial markets and a global lender of last resort, emerging economies remain vulnerable to a sudden stop in capital flows.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/E0pi91L;
  1. reinhart39_ Sha HantingChina News ServiceVisual China Group via Getty Images_jerome powell Sha Hanting/China News Service/Visual China Group via Getty Images

    Jerome Powell’s Dilemma

    Carmen M. Reinhart & Vincent Reinhart

    There is a reason that the US Federal Reserve chair often has a haunted look. Probably to his deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that President Donald Trump will be reelected next year.

    0
  2. mallochbrown10_ANDREW MILLIGANAFPGetty Images_boris johnson cow Andrew Milligan/AFP/Getty Images

    Brexit House of Cards

    Mark Malloch-Brown

    Following British Prime Minister Boris Johnson's suspension of Parliament, and an appeals court ruling declaring that act unlawful, the United Kingdom finds itself in a state of political frenzy. With rational decision-making having become all but impossible, any new political agreement that emerges is likely to be both temporary and deeply flawed.

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions