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Federal Reserve Officials To Evaluate Stimulus Easing

Jan 27, 2014
Originally published on January 27, 2014 5:25 am
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Federal Reserve officials are meeting this week to decide whether to continue easing up on economic stimulus measures. The pullback by the Fed so far is being felt around the world, especially in some emerging markets. And the turbulence helped send stock market prices plummeting on Friday.

NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: In recent days, investors who have been especially worried about two things: First, growth is slowing in China, which could hurt economies that export a lot to that country. Meanwhile, the U.S. Federal Reserve is slowing its stimulus measures; that is sending interest rates higher and makes it more expensive to borrow.

Eswar Prasad, professor of trade policy at Cornell University, said these factors are hurting emerging markets, such as Turkey and Argentina and their currencies have taken a tumble.

ESWAR PRASAD: I think what we're seeing is the wheat being separated from the chaff, that the weaker and more vulnerable emerging markets are the ones that are coming under a lot of pressure.

ZARROLI: Some of these emerging markets are small so the global impact isn't likely to be enormous. But there is a nervousness about where the economy is headed, which was one of the reasons for Friday's big sell-off in the stock market.

for the United States, weaker currency abroad means U.S. exports will become more expensive, so companies that were hoping to sell more products overseas maybe disappointed.

PRASAD: A strong U.S. dollar and a weaker demand for U.S. products abroad could mean that the U.S. economic recovery and the job growth in the U.S. are held back a bit.

ZARROLI: And that threat is looming at a time when the U.S. economy has improved but is still underperforming. So there's a lot at stake were American companies.

Whether the market turmoil continues will depend in part on what the Fed does at its meeting this week, which happens to be the last one for outgoing Fed Chairman Ben Bernanke.

With the economy improving, the Fed is expected to continue taking steps that will push interest rates higher. That will help draw in money from overseas but it will further weaken foreign currency such as the Argentine peso, and it will exacerbate the kind of nervousness that helped drive down stock prices on Friday.

Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.