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Fed's Powell: Emerging Markets Likely to Cope With Normalizing Global Economy

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WASHINGTON (Reuters) - The normalization of monetary policy in the United States and other advanced economies should be manageable for emerging markets, Federal Reserve Governor Jerome Powell said on Thursday, although he cautioned on high levels of corporate debt.

“The most likely outcome is that the challenges posed to (emerging markets) by the normalization of global financial conditions will be manageable,” Powell said at an Institute for International Finance event in Washington on the sidelines of the International Monetary Fund and World Bank semi-annual meetings.

The influential Fed governor noted that while vulnerabilities in emerging markets have been rising, they remain well below crisis-prone periods in decades past, and that capital flows have been moving in line with fundamentals.

However, he cautioned that while the reaction to interest rate rises in the United States had so far been benign in emerging markets, significant risks remained.

“The corporate debt situation in (emerging markets) has been worsening, particularly in China, and market reactions to even small surprises can be unpredictable and outsized,” Powell said.

Powell also said that the U.S. central bank will continue to raise interest rates gradually as along as economic data holds up.

“It bears remembering that Fed policy normalization is occurring not in isolation, but in the context of a solid U.S. economic recovery, which should benefit all economies around the world,” he said.

Powell is among a shortlist being considered by U.S. President Donald Trump for Fed chair should current chair Janet Yellen not be reappointed when her term expires in early February.

Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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