Lagarde, who spoke ahead of the IMF and World Bank fall meetings next week, chronicled a series of "clouds on the horizon" that could hurt the global economy, including central banks' differing plans to raise interest rates.
Point one Central banks in the United States, Japan, the euro zone and Britain have all sharply lowered rates to boost economic growth. But the United States and Britain are now considering "normalizing" their policies and starting to raise rates, which could prompt gyrations in foreign exchange rates, Lagarde said.
Point two "Moreover, the longer easy money policies continue, the greater the risk of fueling financial excess," she said. "This needs to be monitored and managed."
Point clear as mud If you take a close look at point one Lagarde states that increasing rates can cause problems on exchange rates yet increasing rates does make money harder to obtain. Now address easy money policy easy money is low rates is it not?
The expectations of diverging monetary policies in the United States and the euro zone has already been seen in foreign exchange markets. The dollar index, which measures the U.S. dollar against six major currencies, surged nearly 8 percent in the just-ended third quarter, its best quarterly performance in six years. |
