Some basic realities seem to be getting lost in the debate over the Fed’s “exit” from unconventional monetary policy and its impact on Latin America.
First, the still-loose stance makes sense. U.S. inflation is too low, the output gap too large, and the labor market too weak. And even during tapering, the Fed’s stance will remain highly loose. The 10-year Treasury rate, adjusted for core inflation, is about 230 basis points below its 30-year average and the inflation-adjusted Fed funds rate is 320 basis points below. These rates are likely to remain below their 30-year average for at least the next two to three years.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Emerging Markets, Español, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Latin America, Low-income countries | Tagged: capital flows, financial stability, inflation, Latin America, monetary policy, U.S., U.S. Fed | Leave a comment »