Yellen says US economy 'source of strength', rate hike decision not 'abrupt'

Washington: Federal Reserve Chair Janet Yellen conceded Wednesday the Fed’s rate increase could hurt some emerging economies, but that it represents a strong US economy that is good for global growth. [caption id=“attachment_2548594” align=“alignleft” width=“380”]  Fed Chair Janet Yellen/ AP[/caption] “There can be negative spillovers through capital flows, but remember, there are also positive spillovers from a strong US economy,” Yellen said shortly after announcing the Fed’s first rate increase in over nine years. “This action takes place in the context of a US economy that is doing well, and is a source of strength to the emerging markets and other economies around the globe,” she said. After holding its benchmark rate near zero in a crisis stance since December 2008, the Fed increased the rate by a quarter-point to 0.25-0.50 percent on Wednesday and projected as much as another 1.0 percentage point climb over the next year. That can raise borrowing costs for foreign governments and businesses with significant dollar exposure, even as many face slower economic growth. While the prospects for tighter US monetary policy have already spurred capital outflows and currency falls in many emerging market economies, Yellen said the move was strongly telegraphed. “I think this move has been expected and well-communicated, at least I hope that it has. So I don’t think it’s a surprise,” she said in a press conference “We have made a commitment to emerging-market policymakers that we would do our best to communicate as clearly as we could about our policy intentions, to avoid spillovers that might result from abrupt or unanticipated policy moves.” She also said that many emerging economies are stronger than they were in the 1990s, and are better-positioned to deal with the US policy tightening today. “On the other hand, there are vulnerabilities there, and there are countries that have been badly affected by declining commodity prices,” she noted. “So we will monitor this very carefully, but we have taken care to avoid unnecessary negative spillovers.” AFP