Federal Reserve officials should keep global financial stability concerns in mind as they aim at domestic policy goals, even though emerging markets have become better equipped to handle financial volatility, said New York Fed President William Dudley.
“Given the role of the dollar as the global reserve currency, the Federal Reserve has a special responsibility to manage policy in a way that helps promote global financial stability,” Dudley said Thursday in remarks released by the New York Fed from a meeting that was closed to the press.
Dudley, who has a permanent vote on the rate-setting Federal Open Market Committee, said central banks, including the Fed, could “be better global stewards” by making sure they communicate effectively about their policies and by stemming credit excesses.
The MSCI Emerging Markets Index has retreated as much as 16 percent since May 22, when the Fed signaled its asset-buying program could be trimmed if the economy showed improvement.
Emerging-market economies have lowered external debt levels, improved fiscal discipline and strengthened their banking systems, all of which make them more resilient to Fed tightening cycles, Dudley said.
The New York Fed president also called for “a better international mechanism” to cushion the blows of abrupt changes in capital flows.
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