Emerging Markets Can't Blame the Fed for Their Problems
Countries that feasted on cheap money for almost a decade ago are now suffering from a withdrawal of global liquidity.
Fed Chairman Jerome Powell is poised to keep raising interest rates.
Photographer: Bloomberg
Emerging markets have taken a hit from the prospect of even higher U.S. interest rates and a stronger dollar, which increase the cost of servicing external debt. The pressure can be seen in the depreciation of their currencies, with the MSCI Emerging Markets Currency Index dropping 3.54 percent from its high this year in early April.
Countries that feasted on the cheap money that resulted from the quantitative easing and near-zero interest rates initiated by the Federal Reserve almost a decade ago are now suffering from a withdrawal of global liquidity. The correction in emerging-market currencies, debt and equities has further to go with the Fed poised to raise interest rates on Wednesday for the seventh time since December 2015, and as global trade tensions boost investor demand for currencies such as the dollar that are considered havens.