Central bankers of the Americas gathered at Bloomberg headquarters in New York Monday to discuss monetary policy in the Western Hemisphere.
There was, unsurprisingly, a lot of focus on how the Federal Reserve’s first interest rate hike in nearly nine years — which is likely to come sometime in the second half of 2015 — is going to affect emerging market economies. There was also discussion of how the steep decline in oil prices has affected each of their economies.
The oil shock has had a mixed effect in the Americas — it’s a huge deal for Colombia and Canada, which are big producers, and less so for Chile and Peru.
Interestingly, the rough consensus on Federal Reserve policy is that it won’t have too much of an effect on Latin American economies. Jose Dario Uribe, the Governor of the Banco de la Repulica de Colombia, and Julio Verarde, the President of the Banco Central de Reserva del Peru, came up with three different reasons for that in their discussion:
- Rate hikes are priced in already. The market has been anticipating this interest rate hike for a long time. “We don’t expect a bit movement in the exchange rates or bond rates,” said Uribe.
- The Fed rising interest rates means the US economy is doing well. That’s good news for its trading partners in the western hemisphere.
- Negative effects of increasing rates in the US will be partially offset by quantitative easing (QE) in Europe (and to some extent Japan). Don’t forget: even as the US tightens monetary policy, much of the developed world remains very lows.
That last point is an interesting theory, and seem to be an under-discussed point. If that turns out to be true, what happens when QE ends in Europe?