BackAll eyes on the US Fed
On the aftermath of Larry Summers pulling out of the race to become the next chairman of the US Federal Reserve
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The decision by Larry Summers to pull out of the race to become the next chairman of the US Federal Reserve led to a rally in emerging market assets on Monday.
Summers was expected to aggressively withdraw from what has come to be known as quantitative easing. That his decision had such an effect is proof that much of what happens in the markets in the coming weeks will depend on the decisions taken by the Fed, which is to have its policy meeting this week.
To understand why the direction of US monetary policy is so important, it is useful to look at new data on bank lending released on Monday by the Bank for International Settlements, the global bankers’ club. It shows that cross-border lending to emerging markets in the three months to June rose to $3.4 trillion, as global funds hunted for higher yields. Such flows will moderate once US tightens monetary policy; hence the worry in the emerging markets.
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