The Fed also released its ‘Beige book’ summary of economic conditions in the twelve Fed districts; all reported growth and higher consumer spending and expressed concerns about trade. Having lost more than 10% between US President Donald Trump’s election and the end of March, the dollar index has since strengthened by more than 5%. This is contributing to tighter global financial conditions and dollar liquidity. Emerging markets (EMs) are especially vulnerable because of their reliance on dollar funding, especially in corporate debt markets.
Despite the outflows, net inflows of EM bond and equity funds are over 45 billion dollars in 2018; EM outflows may slow as markets adjust.
The Brent crude oil price is near its highest since 2015 and likely to remain at this level, adding to risks in net fuel importers.
Powell’s comments did not alter expectations of one or two more rate rises in 2018; markets see a near 60% chance of a fourth in December.
