Pimco’s El-Erian makes the following nuanced observation:
“There are two
distinct narratives about the links between Fed policies and financial
volatility in emerging economies.
The first has been put
forward most forcefully by officials in emerging-market countries. They argue
that the Fed’s prolonged reliance on an experimental mix of unconventional
monetary measures -- namely, zero interest rates, aggressive forward guidance
and large asset purchases known as quantitative easing -- pushed investment
capital out of the U.S. and toward emerging economies. The scale and scope of
these funds triggered two types of legitimate concerns.
On the way in, the
surge in capital led to appreciating currencies, reduced export competitiveness
and fueled pockets of financial excesses. The reversal began in earnest in May
amid market perceptions that the Fed planned to taper its market interventions.
On the way out, the flows have caused sharp exchange-rate depreciations, spikes
in local interest rates, and fears of inflation and diminished growth.”
Yale economist Stephen Roach makes an excellent observation:
“The Fed insists that it is blameless – the same absurd
position that it took in the aftermath of the Great Crisis of 2008-2009, when
it maintained that its excessive monetary accommodation had nothing to do with
the property and credit bubbles that nearly pushed the world into the abyss. It
remains steeped in denial: Were it not for the interest-rate suppression that
QE has imposed on developed countries since 2009, the search for yield would
not have flooded emerging economies with short-term “hot” money.”