Fed warning from IMF to developing countries

The IMF issued a Fed warning to emerging markets. The institution stated that the economies of developing countries should be prepared for an interest rate hike from the Fed, and that faster-than-expected interest rate hikes may create volatility in financial markets, trigger capital outflows, and cause depreciation in currencies. In the statement made by the institution today, it was predicted that the strong growth in the US economy would continue and inflation would slow down towards the end of the year. According to reports, the gradual tightening of US policy will have only a minor impact on developing countries. However, it was stated that large-scale wage inflation or ongoing supply chain problems may raise prices more than forecasts and inflation expectations may also rise, causing the Fed to tighten faster. Referring to the rapid interest rate hike and the continuation of the pandemic, the institution said, "Emerging economies should be prepared for economic turbulence. Rapid interest rate hikes may shake the markets and global financial conditions may tighten. US demand may slow down, which could trigger capital outflows and depreciation in currencies in developing countries. The IMF also stated that countries with strong inflationary pressures should increase interest rates and that central banks should be in open and continuous communication about their tightening policy plans. St. Louis Fed President James Bullard stated in a speech that the Fed should start raising interest rates as early as March, earlier than forecasts, to combat inflation.