At the annual meeting of the International Monetary Fund, Vice Fed Chairman Stanley Fischer expressed confidence that a hike in interest rates by the Federal Reserve will not have a negative impact on the global economy, as reported by Marketwatch. Although the initial rises could “trigger bouts of volatility, the normalization of our policy should prove manageable for emerging market economies, ” said Fischer.
Since 2006, U.S. interest rates have been held at nearly zero, a policy known as quantitative easing. There was some alarm both domestically and expressed in emerging markets when last year the Fed announced it would start its “tapering” process and gradually bring interest rates back to normal levels. Reserve bank of India governor Raghuram Rajan expressed concerns for world economies if the U.S. takes overly drastic measures with interest rates. Stanley Fischer believes the global economy can withstand this “tapering, ” and while he acknowledged it wasn’t useful to telegraph to world markets too soon about concrete policies, he was clear about the direction of the next move; “If anybody thinks the next move is a decline in the interest rate, they haven’t been reading. They know what our next move will be.”
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Fischer was not concerned about the 8% drop in the euro since the beginning of the year, and said, “We were all surprised at how long the euro stayed as high as it did, so to turn around and say terrible things are likely to happen–I think what is happening now is reflective of the underlying strength of the economy.”