By David Lawder
BUENOS AIRES (Reuters) – U.S. Treasury Secretary Jack Lew said major emerging market countries should be better able to anticipate a U.S. interest rate hike because of the Federal Reserve’s clear communications, a recapitalized International Monetary Fund and efforts to coordinate monetary and fiscal policies.
Lew told Reuters in an interview late Monday that G20 finance ministers and central bankers would not be surprised by the Fed’s next policy decisions because Fed Chair Janet Yellen and Vice Chair Stan Fischer have communicated clearly and consistently with them.
“They’re both extremely clear in their communications. I think if you go around the world of finance ministers and central bank governors, they feel that they understand what they (Fed officials) are thinking and what they’re doing,” Lew said in Buenos Aires. “I don’t think there’s an element of surprise.”
Expectations of a Fed rate hike by December have risen after three members of its policy committee dissented last week in its decision to leave rates unchanged. In 2013, emerging markets suffered major capital outflows in anticipation of higher U.S. rates and yields as the Fed signaled a looming cutback in its bond buying and an end to its easy monetary policies after nearly a decade of near zero rates.
Lew spoke with Reuters on a trip to Latin America’s four largest economies. Brazil and Argentina are struggling with recessions, while Mexico and Colombia, tied more closely to the U.S. economy, have experienced relatively stronger growth. All have benefited from the relative calm in financial markets following turmoil in January sparked by worries about China’s economic growth path.
Lew would not comment directly on Fed policy but said G20 policymakers understand that the Fed is driven by U.S. domestic inflation and employment, not by the effects of rate decisions on other markets.
“What they kind of rightly want is clear communication and I think they get that,” Lew said.
He said the IMF, which was recapitalized last year when the U.S. Congress year approved a long-delayed reform of the Fund’s shareholding system, is now in a better position to help member countries deal with market turbulence.
“Having a well-capitalized IMF means that there’s money for things like flexible credit lines. If there’s a problem, they have the resources for programs,” Lew said.
Ultimately, however, it is up to each country’s finance ministers and central bank governors to manage policy “so that they can withstand predictable turbulence,” Lew said.
Policymakers need to be able to deal with volatility caused by a rate hike from another country’s central bank, natural disasters, political events or market changes for key commodity exports.
“There are lots of things that can cause bumps and you need to plan your policy to manage in a world which is sometimes bumpy.”
Lew said a number of G20 countries are starting to voice acceptance of U.S. recommendations to rely less on monetary policy and use fiscal measures and structural reforms to boost demand and improve efficiency of their economies.
(Reporting by David Lawder; editing by Diane Craft)