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The Boston Globe

Business

Federal Reserve won’t consider problems abroad

Other nations on their own as stimulus eases

LONDON — Federal Reserve officials have rebuffed international calls to take the threat of fallout in emerging markets into account when tapering off US monetary stimulus.

The risk the Fed’s trimming of bond buying will hurt economies from India to Turkey by sparking an exodus of cash and higher borrowing costs was a dominant theme at the annual meeting of central bankers and economists in Jackson Hole, Wyo., that ended Saturday.

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But such sell-offs aren’t an issue for Fed officials, who said their sole focus is the US economy as they consider when to start reining in $85 billion of monthly asset purchases. Even as Fed officials advised emerging markets to protect themselves, they were pressed by the International Monetary Fund and Mexican central banker Agustin Carstens to spell out their intentions.

‘‘You have to remember that we are a legal creature of Congress and that we only have a mandate to concern ourselves with the interest of the United States,’’ Dennis Lockhart, president of the Atlanta Fed, said on Bloomberg Television. ‘‘Other countries simply have to take that as a reality and adjust to us if that’s something important for their economies.’’

Lacking the attendance of Fed chairman Ben Bernanke, the annual symposium focused on international matters, with delegates debating ‘‘Global Dimensions of Unconventional Monetary Policy.’’ The subject was apt; emerging markets have suffered an investor backlash from the Fed’s tapering signals at a time when they are already slowing after powering the world out of recession.

‘‘There’s a lot of angst out there’’ about the Fed, said Stanford University professor John Taylor, a former US Treasury official. ‘‘There’s 35 central banks represented at this conference. Many of them are concerned.”

Fed officials are debating when to begin slowing their bond purchases.

Emerging-market stocks have lost more than $1 trillion since May, according to data compiled by Bloomberg. That’s when Bernanke said the Fed ‘‘could take a step down’’ in bond purchases. The MSCI Emerging Markets Index has fallen 12 percent this year.

With the 20 most-traded currencies among emerging nations sliding about 4 percent in the past three months, policy makers from these countries are acting to insulate their economies. Brazil last week announced a $60 billion intervention after its currency, the real, swooned, while Indonesia said it will increase foreign-currency supply.

The market palpitations drew warnings that the worst may still be ahead.

‘‘It could get very ugly’’ in emerging economies as the probability of currency and banking crises grows, said Carmen Reinhart, a professor at Harvard University. ‘‘Whenever emerging markets have faced rising international interest rates and softening commodity prices, let us not forget that it has not boded well.’’

IMF managing director Christine Lagarde warned that financial market reverberations ‘‘may well feed back to where they began.’’ She proposed ‘‘further lines of defense,’’ such as currency swap lines.

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