IMF sees complex capital flows from Fed taper «
There will be “complex capital movements across countries for some time to come” as the Federal Reserve continues to taper its bond purchases this year, said Olivier Blanchard, the chief economist of the International Monetary Fund, on Tuesday. The challenge for the Fed will be to normalize monetary policy as the recovery takes hold, Blanchard said in remarks prepared for a press conference updating the IMF’s economic outlook. Only some of this expected normalization has already been priced in both long rates and exchange rates, he said. Emerging-market economies with “weak macro frameworks” may be the most affected, he said. When the Fed hinted at a taper last spring, many emerging-market economies saw their currencies, bonds and stocks fall as global investors pulled back. The Fed must be clear in its communication, Blanchard said. He said he expects the Fed to start to raise its short-term interest-rate target in 2015. In its updated forecast, the IMF said that global growth will improve to a 3.7% rate in 2014 from 3% in 2013 and then rise to 3.9% in 2015. There is a risk of deflation in the euro zone, Blanchard said.