Fed on Track to Raise Rates Regardless of Emerging-Market Woes

Bloomberg.com — Emerging markets struggling with higher U.S. interest rates are likely to get little sympathy from the Federal Reserve.

Emerging-market currencies have been hammered in a spreading selloff amid worries that their economies won’t cope with higher U.S. borrowing costs. That’s prompted central bankers in India and Indonesia to urge Fed caution, while officials in Brazil are warning of challenging times.

There are few signs such concerns will steer the Fed away from its course for at least two and possibly three more rate hikes this year, including a move at its policy meeting next week.

Chairman Jerome Powell explicitly pushed back against criticism early last month in Zurich, saying the role of U.S. monetary policy on foreign domestic financial conditions was “often exaggerated.” His colleague, Governor Lael Brainard, mentioned emerging markets in a May 31 speech, but spent far more time discussing the upside risks posed by fiscal stimulus.

“I don’t think they can change policy based on fear,” said Bricklin Dwyer, senior economist at BNP Paribas in New York. Emerging-market turmoil “is noise right now, justifiable noise. But does it shift the outlook for the U.S? The answer is, not yet.”

The U.S. economy is powering ahead, adding over a million jobs in the first five months of 2018. Inflation is at the central bank’s 2 percent target, and the Atlanta Fed’s gross domestic product tracking model suggests the economy grew a strong 4.5 percent in the second quarter. […]