G20: why the Federal Reserve will be a hot topic in Russia
The prospect that the US Federal Reserve is about to taper down trillions in bond purchases is roiling emerging markets and could generate sparks at this week's G20 meeting in St. Petersburg.
The Group of 20 nations are holding their heads-of-state meeting this year against a backdrop of worry – and it’s not just about the question of possible military intervention in Syria.Skip to next paragraph
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The meeting also coincides with questions about the health of the global economy, especially the way that signals that the US Federal Reserve is close to tapering trillions of dollars in bond purchases are rippling outward to create turbulence for emerging-market nations.
Forecasters are still predicting that the world economy will grow, but this storm over tightening financial conditions is weighing on the outlook.
And at the G20 meeting later this week in St. Petersburg, Russia, it could make for friction between advanced and less-developed nations.
“They're going to strongly remind the United States of its international responsibility,” says economist C. Fred Bergsten, referring to the way Federal Reserve policies affect interest rates and money flows in countries such as India and Brazil.
But President Obama, who will be attending the meeting along with other heads of state – including those of hard-hit India and Brazil – doesn’t have any direct influence on the Fed, since the US central bank is politically independent.
“It may not be too fruitful a discussion,” says Mr. Bergsten, a senior fellow at the Peterson Institute for International Economics in Washington, who spoke to reporters on a conference call ahead of the summit.
Fed policymakers have been signaling that they’re close to a pivot-point in monetary policy – a decision to begin tapering the amount of US Treasury bonds and mortgage-backed securities that the central bank purchases each month in its efforts to keep interest rates low and promote economic growth. This pullback from so-called “quantitative easing” (QE) in the monetary realm could start as early as this month.
The rationale for a downshift is that the US economy is showing stronger signs of self-sustaining growth, and therefore that the Fed should start transitioning from unconventional stimulus efforts (the QE program) toward a more normal policy climate.