Parlez Vous QE? The Fed's Foreign Language Lessons

        By Pedro Nicolaci da Costa
        The Federal Reserve has emphasized risks from slower growth overseas as a threat to the U.S. economic outlook. As Fed Chairwoman Janet Yellen goes before Congress to deliver her semiannual testimony on monetary policy this week, she could get asked how much of a factor overseas developments will be in the central bank's decision making.
        Her answers could reflect a Fed that has become increasingly aware of and vocal about the way in which international market and economic conditions can affect the U.S. economy and, in turn, how the central bank's policies ripple around the world.
        "Because the economy and financial system are becoming increasingly globalized, fulfilling [the Fed's] objectives requires us to achieve a deep understanding of how evolving developments and financial markets and economies around the world affect the U.S. economy, and also how U.S. policy actions affect economic and financial development overseas," Ms. Yellen said in a November speech.
        That marked a significant change in tone from Ben Bernanke, who generally dismissed criticisms that loose monetary policy in the United States was destabilizing the financial systems of emerging market nations. He rejected suggestions the Fed should take other countries' needs into consideration when crafting U.S. policies.
        "Industrial countries are most concerned that domestic aggregate demand be set at the level that best fosters price stability and a return to full employment at home," Mr. Bernanke said in a 2013 speech in London.
        One sign of the shift: The Fed last month used the term "international developments" for the first time ever in its policy statement, including them among the factors it is monitoring as it makes decisions on interest rates.
        To be sure, the word "global" pops up in the Fed statement quite a few times in 2011 and 2012, primarily in reference to strains in financial markets as a potential downside risk to the U.S. outlook.
        But the internationalization of the Fed's outlook is palpable, and reflects in part the inclinations of the central bank's influential new vice chairman, Stanley Fischer. Mr. Fischer has an array of international policy experience as former head of the Bank of Israel and deputy managing director of the International Monetary Fund during a time of turmoil in emerging markets.
        Mr. Fischer used his third speech as the Fed's No. 2 to expand on his views about the role of international affairs on domestic monetary policy.
        "If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise," he said. "In the normalizing of its policy, just as when loosening policy, the Federal Reserve will take account of how its actions affect the global economy."
        (END) Dow Jones Newswires

        February 23, 2015 17:48 ET (22:48 GMT)

#FX
#Forex
#Feds
#TheFeds
#ForeignLanguage
#LanguageLessons