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Strategies & Market Trends : The Financial Collapse of 2001 Unwinding
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From: elmatador1/19/2021 5:54:55 AM
   of 13801
 
Emerging Markets Have Less Reason to Fear the Fed

A more cautious Federal Reserve, a less cheap dollar and moderate inflows of foreign money make a ‘taper tantrum’ of the variety seen in 2013 less likely

By Mike Bird

Updated Jan. 19, 2021 3:35 am ET

Recent ructions in U.S. government bond markets have revived discussions of a potential “taper tantrum,” mirroring the expectations of a sudden rise in interest rates that came in 2013 as the Federal Reserve signaled its intention to cut back its enormous bond-buying program.

At the time, the news took investors by surprise and rocked emerging markets. There is less prospect of that this time: Federal Reserve Chairman Jerome Powell says he wants the Fed to signal any tapering well in advance.

But just as important, developing markets look better insulated than in 2013.

It wasn’t just the taper tantrum itself that mattered for emerging markets, but the currency-market shifts during the subsequent year. The ICE Dollar Index rose by as much as 25% from the spring of 2014 to the spring of 2015. That surge disrupted years of planning by corporations and governments, which had anticipated a relatively weak dollar, something that seemed like the new normal for almost a decade.

That wouldn’t be the case today. For one, the dollar’s decline in 2020 was far smaller than its mid-2000s plunge. A similar climb would take the dollar into rarefied territory seen only between 2000 and 2002. That isn’t impossible but doesn’t seem likely.

wsj.com
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