If there were a character in literature who best mirrored the power the United States Federal Reserve wields over the global economy, it would be Gulliver. Though he was a decent chap who meant no harm, his very massiveness presented a danger to all around him – in this case, the Lilliputians of the global economy: emerging markets (EMs).
But unlike Gulliver, the Fed is constitutionally prohibited from heeding the cries of Lilliputian economies when crafting interest rate policy. The Fed’s dual remit is narrow and decidedly parochial: Use monetary policy to battle US inflation and maximise the US job market. Preventing chaos in emerging markets simply does not come into it.
Yet some EM chaos may beckon. On Tuesday, Federal Reserve policymakers will kick off their first two-day meeting of this year.
As 2021 drew to a close, the Fed pivoted priorities away from supporting jobs creation by keeping borrowing costs low and towards reining in inflation – which is running near a 40-year high.
To achieve that, it signalled that it is gearing up for at least three hikes to its benchmark interest rates this year.
Since then, speculation has been growing that taming inflation could require four rate hikes, not three, raising the stakes not just for the US economy, but for emerging markets as well.
When the Fed raises interest rates, Americans end up paying higher rates on mortgages and credit cards, while US businesses also see their borrowing costs go up. But the effects of the Fed’s liftoff don’t end at the US border.
When the Fed hikes interest rates, borrowing becomes costlier throughout the world. That is especially true of countries that have so-called “dollarized debt” – nations that have taken advantage of the decade-plus of low interest rates by issuing sovereign bonds denominated in dollars, and that now face the prospect of refinancing those bonds in much less favourable conditions.
This mix – a tightening by the Fed combined with high debt or mispriced currency in EM countries – led to some pain in 2013, when the Fed began to “taper” its post-2009 stimulus policy of purchasing US Treasuries.
The impact on even the largest EM markets was quick and brutal as investors began moving dollars to “safe havens” like US Treasuries and out of EM investments. So quick was the outflow of US dollars from the Indian economy that the rupee fell by 15 percent in three months, forcing the Reserve Bank of India to raise rates.
India was not alone. Russia, Brazil, Turkey, Indonesia and other smaller EM economies suffered similar outflows, sometimes exacerbated by political unrest or policy mistakes. As a market segment, emerging market bonds lost over 10 percent of their value in 2013 as a result.
The Fed’s interest rate increases simply cannot be ignored, if for no other reason than it is the steward of the world’s largest economy and the global reserve currency, the dollar. Everything the Fed does has a knock-on effect for share prices, trade flows, supply chains, and sovereign bond and currency markets the world over.
By and large, economists and market analysts are confident that the improved condition of EM balance sheets and generally good economic global growth prospects for 2022 will limit the kind of dislocation experienced in 2013.
Charles Robertson, chief economist at the investment bank Renaissance Capital, told Al Jazeera that the Fed’s plan for gradual tightening has been widely telegraphed, limiting the scope for a “tantrum”. In any case, he said, “Fed hikes usually mean the world economy is doing well, which is good for the emerging markets.”
Robertson, whose bank has a large presence in Russia, the former Soviet Union, the Middle East, North Africa and sub-Saharan Africa, says a bigger concern will be the strength of the US dollar, which could spike after the Fed’s move and make it less likely for global traders to engage in a “carry trade” – an arbitrage strategy that invites investment in high-interest EM vehicles by financial institutions able to procure dollars from the Fed on the cheap.
Fed hikes usually mean the world economy is doing well, which is good for the emerging markets.
But the tightening in Washington will limit the room EM central banks and governments have to continue stimulating their economies. Rachel Ziemba, a noted China expert and EM economic historian, says that higher Fed rates will make it harder for many EM economies to regain their pre-pandemic footing.
As the year progresses, “it will become more obvious that the short-term international support for the most vulnerable developing economies hasn’t shifted into longer-term support”, she told Al Jazeera.
Ziemba noted that policymakers will need to grapple with this issue at the upcoming April meetings of the International Monetary Fund and World Bank as well as the next Group of 20 summit: “What comes next after the DSSI [debt service suspension] ends and how do they deal with lack of private sector support? Overall growth and domestic demand is struggling in many emerging market countries, due in part to less ability to stimulate than in past crises, as well as market-based adjustments prompting restrictive fiscal and monetary policy.”
But Ruchir Sharma, an EM specialist and chief global strategist at Morgan Stanley Investment Management, is a bit of an outlier, professing confidence that EM economies may reverse a decade of doldrums this year despite the Fed’s tightening.
HSBC, for its part, has been monitoring what it calls the “fragile four” – Indonesia, Brazil, Mexico and South Africa – out of concern that their high dollar-debt levels may make them particularly vulnerable to higher US interest rates. Analysts worry, too, about Turkey, where debt is spiking and a series of interest rate cuts last year in the face of soaring inflation – an unorthodox policy championed by President Recep Tayyip Erdogan – led the Turkish lira to crash.
“President Erdogan is determined to defy orthodox monetary policy,” Stephen Cook, a Council on Foreign Relations expert in Turkey and the Middle East, told Al Jazeera. “This is a recipe for more inflation, economic dislocation in the corporate sector, and generally distrust in economic decision-making.” With Turkey’s foreign reserves almost depleted, its currency tumbling and its economy flirting with hyperinflation, Cook fears any external shock could lead to dire consequences.
If this time is, indeed, different, one can hardly blame EM central bankers and the investment advisers who manage global capital flows for worrying, say analysts.
Ever since the implosion of the US mortgage bond market triggered the Great Recession in 2008, world nations have stood watch for signs that a sudden market swing or policy reversal will send shock waves their way once again. US economic policy, increasingly insular and buffeted by the populist dynamics unleashed by a decade of economic setbacks and futile wars, has stopped pretending to model for anything other than managing relative decline.
And 2013 was only the latest instance of a global crisis sparked by the US-focused Fed. There was the 1994 “Tequila Crisis” in Mexico, which saw the collapse of the peso and a hastily arranged US bailout; the 1997-1998 Asian financial crisis, which led to crushing recessions in the Philippines, South Korea, Thailand, Japan and Indonesia and contributed to the overthrow of the latter’s dictator, Suharto; and the Russia rouble crisis of 1998, which in retrospect drew a line under the free-market reforms of the post-Soviet period and helped usher President Vladimir Putin into office.
Kavaljit Singh, director of the Public Interest Research Centre in New Delhi, said analysts who discount a “Taper Tantrum 2.0” take too sanguine a view of EM economic strength in the midst of the global coronavirus pandemic. While Singh agrees that EM balance sheets are in better shape today than in 2013, he says the enormous expenses and growth hits associated with the pandemic relief and stimulus may offset those structural improvements in emerging market and developing economies (EMDEs).
“The uneven global distribution of COVID-19 vaccines has led to most EMDEs lagging behind their advanced peers,” Singh wrote in the widely read economic blog The Wire. “The slow pace of vaccinations in EMDEs makes them increasingly vulnerable to new waves of infection and the spread of virus variants. The risk of future lockdowns is holding back investment and consumption, thereby delaying the economic recovery in EMDEs.”
The markets continue to see the Fed’s March meeting as the most likely start of the rate increases, as the Omicron variant of the coronavirus once again reminds global markets that there’s more than one invisible hand at play. By then, US inflation may have abated somewhat and a clearer trajectory of both US and global growth may have emerged, negating the need for sudden steep hikes that would almost certainly bring instability to emerging markets.
President Kais Dissolves Top Judicial Watchdog
Tunisia’s president dissolves top judicial watchdog
Tunisian President Kais Saied has dissolved a judicial council that deals with the independence of judges.
Saied – who had dismissed the government and suspended parliament last July – said on Sunday that the Supreme Judicial Council was a “thing of the past”.
sassinations of left-wing activists in 2013.
His decision raises fears about the independence of the judiciary and caps months of his sharp criticism of Tunisia’s judges.
Last month, he revoked all financial privileges for members of the top judicial council, which was formed in 2016 and tasked with ensuring the independence of the judiciary, disciplining judges and granting them professional promotions.
“In this council, positions and appointments are sold according to loyalties. Their place is not the place where they sit now, but where the accused stand,” Saied said in a speech in the interior ministry.
“You cannot imagine the money that certain judges have been able to receive, billions and billions,” he added.
The council’s dissolution comes on the ninth anniversary of the assassination of secular politician Chokri Belaid, with parties and organizations, including the powerful UGTT union, preparing to hold demonstrations later in the day to pressure the judiciary to hold those involved in terrorism accountable.
It is expected that Saied’s supporters also will protest in a second demonstration against the Supreme Judicial Council.
“I tell Tunisians to demonstrate freely. It is your right and our right to dissolve the Supreme Judicial Council,” Saied said.
Saied’s approval of Sunday’s demonstrations comes even though a government decision to ban all demonstrations remains in effect.
Last month, police fired water cannons and beat protesters with sticks to break up an opposition protest against Saied, whose seizure of broad powers and declared plans to redraw the constitution have cast doubt on Tunisia’s decade-old democratic system and hindered its quest for an international rescue plan for public finances.
The president has initiated an online public consultation before drafting a new constitution that he says will be put to a referendum.
He has not brought major political or civil society players into the process.
Australian Deputy Prime Minister Has Apologiseda To Prime Minister Scott Morrison
Australia PM Morrison’s deputy sorry for calling leader a ‘liar’
Morrison said in a statement on Saturday that he accepted Joyce’s apology.
In a leaked message, the deputy prime minister, who heads the junior partner in Morrison’s coalition government, said last year that he had never trusted Morrison.
“He is a hypocrite and a liar from my observations and that is over a long time,” Joyce wrote to a former staffer of Morrison’s Liberal Party who had alleged sexual assault by a fellow staffer.
Joyce’s remarks further shake the political position of Morrison, who must call a federal election by May. His approval ratings have fallen over his handling of an Omicron-driven coronavirus outbreak.
“I want to apologise to the prime minister … I should have never written the text that I did,” Joyce told a news conference.
“My view from the backbench about the prime minister was based on assumption and commentary, not from a one-on-one working relationship.”
Joyce became deputy prime minister in 2021 as the leader of the National Party, not as Morrison’s appointee. Joyce’s party, which has the power to remove him as its leader, did not immediately reply to requests for comment.
Morrison responded, “Relationships change over time. Politicians are human beings too. We all have our frailties and none of us are perfect.”
Joyce’s text message, first reported on Friday night by Nine Newspapers, was sent through a third party to former Liberal Party staffer Brittany Higgins. She had alleged that she was sexually assaulted in Parliament House in March 2019.
The political commotion comes just days after a controversy about an alleged exchange between senior Liberal Party members making derogatory remarks about Morrison.
Opposition Labor leader Anthony Albanese said it was “untenable” for Joyce to continue as deputy prime minister.
“I couldn’t care less that the Liberal Party members all don’t like each other,” Albanese said at a briefing. “What I do care about is the consequences of a government that is dysfunctional.”
Trump ‘wrong’ to say 2020 election could be overturned
Trump ‘wrong’ to say 2020 election could be overturned
Former Vice President Mike Pence has directly rebutted Donald Trump’s false claims that he somehow could have overturned the results of the 2020 election in the United States, saying that the former president was simply “wrong”.
In a speech to a gathering of the conservative Federalist Society in Florida on Friday, Pence addressed Trump’s intensifying efforts this week to advance the false narrative that, as vice president, he had the unilateral power to prevent President Joe Biden from taking office.
“President Trump is wrong,” Pence said. “I had no right to overturn the election.”
Pence’s declaration marked his most forceful response yet to Trump, who has spent his post-presidency stoking the lie that the 2020 campaign was stolen from him. And it comes as Pence begins laying the groundwork for a potential run for president in 2024, which could put him in direct competition with his former boss, who is also teasing a comeback run.
The relationship between the two men took on a new dynamic this week as Trump escalated his attacks on Pence.
In a statement Tuesday, Trump said the committee investigating the deadly January 6 attack on the Capitol should instead probe “why Mike Pence did not send back the votes for recertification or approval”. And on Sunday, he blasted Pence, falsely declaring that “he could have overturned the Election!”
Vice presidents play only a ceremonial role in the counting of Electoral College votes, and any attempt to interfere in the count would have represented an extraordinary violation of the law and an assault on the democratic process.
Pence, in his remarks on Friday to the group of lawyers in Lake Buena Vista, described January 6, 2021, as “a dark day in the history of the United States Capitol” and framed his actions that day as in line with his duty as a constitutional conservative.
“The American people must know that we will always keep our oath to the Constitution, even when it would be politically expedient to do otherwise,” he told the group on Friday.
He noted that, under Article II Section One of the Constitution, “elections are conducted at the state level, not by the Congress” and that “the only role of Congress with respect to the Electoral College is to open and count votes submitted and certified by the states. No more, no less.”
He went on to call out those who have insisted that is not the case.
“Frankly there is no idea more un-American than the notion that any one person could choose the American president,” he added. “Under the Constitution, I had no right to change the outcome of our election. And Kamala Harris will have no right to overturn the election when we beat them in 2024.”
The audience applauded Pence’s line about beating the Democrats in the upcoming presidential election, but remained silent when Pence said earlier that “Trump is wrong”.
Pence was inside the Capitol on January 6, presiding over the joint session of Congress to certify the presidential election, when a mob of Trump’s supporters violently smashed inside, assaulting police officers and hunting down legislators.
Pence, who released a letter moments before the session got underway that made clear he had no authority to overturn the will of the voters, was rushed to safety as some rioters chanted “Hang Mike Pence!”
The former vice president, in his remarks Friday, acknowledged the lingering anger among many in Trump’s base, even as he said it was time “to focus on the future”.
“The truth is, there’s more at stake than our party or political fortunes,” he said. “Men and women, if we lose faith in the Constitution, we won’t just lose elections — we’ll lose our country.”
Big36 days ago
Snoop & Gary Vee Got “Ownership” Of A Basketball Team With Ice Cube’s BIG3 NFTs
Bitcoin6 days ago
Veteran Investor Mark Mobius Expects Bitcoin To Fall Further — Cautions Crypto Traders Against Buying The Dip
Bitcoin6 days ago
US, UK, Canada, Australia, Netherlands Share Crypto Criminal Leads, Including A Potential $1B Ponzi Scheme
Congress5 days ago
SEC Commissioner Expects Tighter Stablecoin Regulation — Yellen Says Stablecoins Not Real Threat To Financial Stability
Cryptocurrency6 days ago
How Much Money Could You Make From Investing In Uniswap (UNI), Monero (XMR), And Quitriam Finance (QTM)?
Airdrop3 days ago
Terra Community Plans To Vote On Forking The Chain — Launch May Airdrop A Billion New Tokens To Network Participants
Press release7 days ago
Following French Montana, Vietnam’s Number 1 Celebrity Singer Son Tung M-TP Joins RACA’s USM Metaverse
Bitcoin Obituaries5 days ago
Terra’s Big Backers, Shanghai Court Declares Bitcoin Property, BTC Obituaries, And Triple Top Hopes — Bitcoin.com News Week In Review