In addition for the need for developing countries to improve their economic fundamentals to withstand the transition, the IMF called on the Fed and other major central banks to pursue interest-rate policies that are “carefully calibrated and clearly communicated.”
Critics have charged that the Fed has botched its communications strategy and left investors confused while Fed officials contend that the economy has not improved as expected, and because of that, it delayed an expected initial reduction in bond purchases at the September meeting.
Now with the hit to the U.S. economy from the partial government shutdown and the uncertainty over the debt ceiling, many economists believe the Fed will not start trimming its $85 billion in monthly bond buys until next year after Vice Chair Janet Yellen, who was nominated this week to succeed Fed Chairman Ben Bernanke, takes over in February. Her nomination by President Barack Obama must win Senate approval.
Many economists believe that once the transition has been accomplished, the global economy should actually begin growing at better rates in part because less support from the Fed will mean the U.S. economy is doing better and serving as a market for foreign products.
“A while ago there was an excess of exuberance and now perhaps an excess of pessimism,” Alexandre Tombini, the head of Brazil’s central bank, told the International Monetary Fund’s policy-setting panel Saturday.
Lew told finance ministers that the United States understands the role it plays as “the anchor of the international financial system.” He assured the finance officials that the administration was doing all it could to reach a resolution with Congress to reopen the government and increase the borrowing limit.
Russian Finance Minister Anton Siluanov, whose country currently holds the rotating chair of the G-20, told reporters that no emergency plans had been discussed by the group to deal with the potentially catastrophic impact on the global economy of a U.S. debt default.
“We trust the U.S. authorities will find a way out of this complex situation,” Siluanov said. Other finance leaders attending the meeting said they saw the risk of default as remote.