Turmoil in the emerging markets prompts an uncomfortable thought. Has the Federal Reserve’s quantitative easing programme done more to damage emerging markets than to boost the US recovery? It would be ironic indeed if the chief impact of the Fed’s unconventional measures turned out in hindsight to have been outside the US.
Maybe the implication is a little harsh.
We cannot be certain where the US economy would be if the Fed’s asset purchasing programmes had not taken place, but I suspect the recovery would have been more feeble or non-existent without this central bank activism, even if the impact of more recent purchases has been minimal. Its chief effect was to offset deleveraging that would otherwise have caused deflation. What we know for sure, though, is that interest rate repression in the US was designed to increase risk appetite, and in this the Fed has been outstandingly successful. A notable consequence was a huge flow of hot money from the US into emerging markets.