Fed's Powell: Expect Gradual Future Rate Hikes; Good for EMEs

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,

Powell said.

     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,

he said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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