The lurking nightmare amongst the IMF's mixed messages.....

Wednesday 15th April 2015

 The lurking nightmare amongst the IMF's mixed messages.....

"Markets braced as US set to raise rates" , The Daily Telegraph, p.B1

A slightly misleading headline one might think, as the general consensus has it that recent softer-than-expected data from the US suggests that the Fed's rate-raising cycle has been put back a while. Maybe so, but in its World Economic Forecast the IMF warns that may only mean a sharper climb in rates when it does happen, and one which the markets are thoroughly unprepared for. The IMF is deeply concerned, as well it might be, about what that means for emerging nations (think Brazil, Russia etc., though not the more robust India). We've talked before about the double-whammy facing these nations who have borrowed so heavily in dollar-denominated debt : higher US rates mean both higher interest payments and a stronger dollar. The danger posed by the former is self-evident, and as a small but apposite example of what the stronger currency might mean, think back to the extreme difficulties that the surging Swiss Franc brought to those that had borrowed in that currency.