Yellen wins praise for smoothing concerns about Fed's tapering
Yellen wins praise for smoothing concerns about Fed's tapering
JANET Yellen, in her first global forum as US Federal Reserve chair, won praise for helping smooth emerging-market concerns as the Group of 20 (G-20) nations pledged to be mindful of international repercussions of monetary policy.
In the lead up to the concluding communique released on Sunday in Sydney, India and South Africa were among nations calling for the Fed to consider spillovers as it withdraws stimulus. Officials from the UK and Australia had backed the Fed's right to set policy to its own needs and said some were using the impact of tapering as an excuse for domestic failings.
Announcing the G-20's priorities, Australian Treasurer Joe Hockey said Ms Yellen was 'hugely impressive' in dealing with the issue of taper fallout. 'There was proper recognition that the movement of monetary policy in major developed countries either way, whether it be tightening or easing, is going to have an impact on emerging economies,' he said in a speech.
Three weeks into her job, Ms Yellen, 67, kept her influence behind closed doors, eschewing public statements while in Sydney. As Mr Hockey and his French and Spanish counterparts noted her impact in deliberations, Reserve Bank of India governor Raghuram Rajan, who warned before the meetings of a breakdown in global policy co-ordination due to tapering, noted 'widespread agreement' on the need to calibrate policy.
The timing of stimulus pullback would depend on the outlook for prices and growth, the G-20 communique said. The group will aim to lift collective gross domestic product by more than 2% above the trajectory implied by current policies over the coming five years.
The final G-20 statement included a commitment that central banks would be 'mindful of impacts' of monetary policy settings - a clause that was not in a draft seen by Bloomberg News on Friday. A line saying the G-20 nations 'recognise that monetary policy needs to remain accommodative in many advanced economies' was also added since the draft statement was seen.
The communique included language on carefully calibrated policies that echoes a previous statement at the G-20 leaders summit in St Petersburg, Russia, in September.
'Emerging market nations' concerns were clearly aired in the statement yet there is no indication the Fed will make the slightest change to its current policy approach,' said Sean Callow, a currency strategist at Westpac Banking in Sydney.
Mr Yellen earlier this month pledged to maintain her predecessor's policies by scaling back stimulus in 'measured steps'.
She said she was 'committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2% while ensuring that it does not run persistently above or below that level'.
In Sydney, Brazilian central bank President Alexandre Tombini said Ms Yellen 'herself said that obviously they are looking at the international situation to define their policies'. He was speaking to reporters after the G-20 meeting.
'There appears to have been some progress from at least the way the US Fed had been presenting itself in the past,' said Mike Callaghan, the Sydney-based director of the G-20 Studies Centre at the Lowy Institute.
'My impression from Janet Yellen is that it's a more balanced approach and I'm sure that it will be well received by emerging markets.'
Mr Rajan said 'there was widespread agreement both from industrial countries and the emerging markets that we should make sure our actions are appropriately calibrated and we should worry about spillover effects'.
Even amid the talk of cooperation, Saul Eslake, Melbourne-based chief Australia economist of Bank of America Merrill Lynch, said the Fed's needed to set policy appropriate to the US economy would take priority. 'Although the Fed's decisions have a significant impact on other economies, you can't really expect the Fed to tailor its monetary policy to the needs of other countries.
'But consistent with that mandate she can appear more or less sympathetic with the concerns of developing economies.'
European Central Bank president Mario Draghi said while central banks should not ignore spillovers from their policies and could communicate more, they were bound by their mandates. It was also up to emerging markets to attend to their own structural weaknesses.
'In terms of tapering: obviously it is a decision entirely for the Fed, it's part of the process of normalising monetary policy,' Bank of England governor Mark Carney told the Australian Broadcasting Corp's The Business. 'I have every confidence that the Fed and Chairman Yellen will take the right decision.'
Global stocks erased 2014 losses last week as growing confidence in the US economy helped restore about $3 trillion of value. The MSCI emerging markets index has lost 4.8% so far this year.
'We're all in this together, I think that was the sense in the room,' Canada's Finance Minister Jim Flaherty said at the weekend of the meeting. 'There are no divisions between relatively wealthy economies and relatively emerging economies.'
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