The Challenge of Monetary Independence
By shadowing the US Federal Reserve so closely, Latin American countries are foregoing the policy flexibility that their floating exchange-rate regimes are intended to allow. They also risk relying too heavily on possible US interest-rate cuts to boost their economies, and not enough on deeper, long-term reforms.
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LONDON – The United States Federal Reserve has done it again. In 2018, the prospect of higher US interest rates sent emerging markets into a tailspin. But so far this year, indications of a more relaxed Fed stance have boosted emerging-market currencies and stock markets, despite concerns about a possible US-China trade war, economic slowdowns in most major economies, and rampant populism.