Janet Yellen, in her first global forum as Federal Reserve chair, won praise for helping smooth emerging-market concerns as the Group of 20 nations pledged to be mindful of international repercussions of monetary policy.
In the lead up to the concluding communique released yesterday in Sydney, India andSouth Africa were among nations calling for the Fed to consider spillovers as it withdraws stimulus. Officials from the U.K. and Australia had backed the Fed’s right to set policy to its own needs and said some were using the impact of tapering as an excuse for domestic failings.
Announcing the G-20’s priorities, Australian Treasurer Joe Hockey said Yellen was “hugely impressive” in dealing with the issue of taper fallout. “There was proper recognition that the movement of monetary policy in major developed countries either way, whether it be tightening or easing, is going to have an impact on emerging economies,” he said in a speech.
Three weeks into her job, Yellen, 67, kept her influence behind closed doors, eschewing public statements while in Sydney. As Hockey and his French and Spanish counterparts noted her impact in deliberations, Reserve Bank of India Governor Raghuram Rajan, who warned before the meetings of a breakdown in global policy coordination due to tapering, noted “widespread agreement” on the need to calibrate policy.
The timing of stimulus pullback will depend on the outlook for prices and growth, the G-20 communique said. The group will aim to lift collective gross domestic product by more than 2 percent above the trajectory implied by current policies over the coming five years.
The final G-20 statement included a commitment that central banks would be “mindful of impacts” of monetary policy settings — a clause that wasn’t in a draft seen by Bloomberg News on Feb. 21. A line saying the G-20 nations “recognize that monetary policy needs to remain accommodative in many advanced economies” was also added since the draft statement was seen.
The communique included language on carefully calibrated policies that echoes a previous statement at the G-20 leaders summit in St. Petersburg, Russia, in September.
“Emerging market nations’ concerns were clearly aired in the statement yet there is no indication the Fed will make the slightest change to its current policy approach,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney.
Yellen on Feb. 11 pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps.” She said she’s “committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level.”
In Sydney, Brazilian central bank President Alexandre Tombini said Yellen “herself said that obviously they are looking at the international situation to define their policies.” He was speaking to reporters after the G-20 meeting.
“There appears to have been some progress from at least the way the U.S. Fed had been presenting itself in the past,” said Mike Callaghan, the Sydney-based director of the G-20 Studies Centre at the Lowy Institute. “My impression from Janet Yellen is that it’s a more balanced approach and I’m sure that it will be well received byemerging markets.”
In an interview in Sydney, Rajan said “there was widespread agreement both from industrial countries and the emerging markets that we should make sure our actions are appropriately calibrated and we should worry about spillover effects.”
Even amid the talk of cooperation, Saul Eslake, Melbourne-based chief Australia economist of Bank of America Merrill Lynch, said the Fed’s need to set policy appropriate to the U.S. economy will take priority.
“Although the Fed’s decisions have a significant impact on other economies, you can’t really expect the Fed to tailor its monetary policy to the needs of other countries,” Eslake said. “But consistent with that mandate she can appear more or less sympathetic with the concerns of developing economies.”
European Central Bank President Mario Draghi said while central banks shouldn’t ignore spillovers from their policies and could communicate more, they are bound by their mandates and it’s also up to emerging markets to attend to their own structural weaknesses.
Global stocks erased 2014 losses last week as growing confidence in the U.S. economy helped restore about $3 trillion of value. The MSCI Emerging Markets Index has lost 4.3 percent so far this year, its worst annual start since 2010.
“We’re all in this together, I think that was the sense in the room,” Canada’s Finance Minister Jim Flaherty said yesterday of the meeting. “There are no divisions between relatively wealthy economies and relatively emerging economies.”
G-20 officials committed to encourage higher investment, particularly in infrastructure; to prepare a global response to base erosion and profit shifting; and to continue financial reforms. They expressed “regret” that International Monetary Fund quota and governance reforms agreed to in 2010 haven’t become effective and urged the U.S. to ratify the proposals.
IMF Managing Director Christine Lagarde, who arrived at some of the weekend meetings along with the Fed chair, said in an interview yesterday she believes Yellen is “competent, demanding, thorough, rigorous, but she’s also a very humane, very attentive person.”
French Finance Minister Pierre Moscovici noted the intervention of Yellen, saying she wasn’t “indifferent to the rest of the world.” Spain’s Economy Minister Luis de Guindos said Yellen was “very clear,” and “made a very good statement at the beginning of the meeting.”
Separate from the G-20, Bank of Japan Governor Haruhiko Kuroda told reporters “my opinion is that Yellen is a capable person, and her handling of policy implementation and various comments are highly impressive.”
U.S. President Barack Obama nominated Yellen as Fed chair in October, putting the world’s most powerful central bank in the hands of a key architect of its unprecedented stimulus program. She was sworn in as chair inWashington on Feb. 3, becoming the first female leader in its 100-year history.
“She is certainly being very well-received,” said Callow. “The emerging nations will feel they’ve taken the opportunity to make their positions heard and present their case.”