WASHINGTON–A governor of the European Central Bank called Saturday on the U.S. Federal Reserve to start an international dialogue on its monetary policy to minimize the impact from tighter money. With anticipation of the Fed’s reeling in of its “quantitative easing” stimulus already stirring global financial turbulence, ECB governor and Austrian central bank chief Ewald Nowotny suggested the Fed would do well to communicate with other countries about its plans.
We “encourage the U.S. Federal Reserve to engage in international dialogue in order to minimize unwarranted negative spillovers from the exit of its unconventional monetary policy measures on other countries,” he said in a statement to the International Monetary Fund’s steering committee. Speaking as representative of Austria, Turkey and six Eastern European countries at the IMF, Nowotny said the Fed’s decision last month to put off the expected “taper” of its US$85 billion a month asset purchase program had bought many vulnerable countries needed time to adapt to the prospect of tighter money conditions. The Fed had signaled in May that it would soon reduce the stimulus, sending up interest rates worldwide and spurring capital outflows and currency falls in many emerging countries, including Turkey. The shift in the market exposed significant imbalances in emerging market countries that had built up over time, Nowotny told the International Monetary and Financial Committee, which crafts IMF strategy. “The policy makers in countries under market pressure should use the delay in the Fed’s tapering to address these imbalances in order to be better prepared for the eventual monetary tightening in the U.S.,” he said. At the same time, he said the Fed “should therefore clearly communicate the path of its intended policy actions to minimize negative spillovers which could undermine the policy adjustment efforts of emerging markets.”