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By Jean Yung
WASHINGTON (MNI) - U.S. monetary policy normalization "has been and should
continue to be gradual," as long as the U.S. economy evolves roughly as
expected, Federal Reserve Gov. Jay Powell said Thursday.
The expectation of gradual policy normalization should reduce the
likelihood of "outsized movements" in interest rates, Powell said. The Federal
Open Market Committee projects to rise to 2.9% in 2020, close to its longer-run
value and significantly below its pre-crisis levels.
"Indeed, even if we add, say, a 50 basis point term premium to the expected
long-run federal funds rate, this value would still leave long-term U.S.
interest rates well below their pre-GFC averages," he said in remarks prepared
for the annual meeting of the Institute of International Finance in Washington.
That scale of adjustment should give emerging market economies plenty of
time to adjust without leading to corporate distress or other difficulties,
He warned that the corporate debt situation in emerging market economies
has been worsening, particularly in China, and market reactions to even small
surprises can be "unpredictable and outsized."
But global monetary conditions are expected to normalize only gradually and
so far financial market reactions in emerging market economies has been benign,
--MNI Washington Bureau; +1 202-371-2121; email: email@example.com