The Fed’s forward guidance and communication has steadily been trending toward tightening policy, although this has been mixed with softening assessments of the U.S. economy. Consequently, expectations for the forward curve have come down, and this might provide a reprieve to EM nations that may still be fragile in an environment of higher U.S. rates.
Separately, Gavin commented on the biggest surprise in the markets year-to-date (YTD): Russia, whose equity performance has caught markets off guard. Not only is Russia one of the top-performing markets in EM YTD, but its currency has also been appreciating. U.S. investors have been caught short on this trade and many are starting to go back in full force, driving performance even higher. Gavin also believes there is no indication that sanctions will be ratcheted up any further.
Fed Future Trajectory
Wrapping up this week’s conversation, Professor Siegel reiterated his belief that the Fed will continue to remain accommodative on the monetary policy front, given U.S. dollar strength, the weak payroll report and lackluster inflationary pressures.
Read the Conversations with Professor Siegel Series here.
1Source: United Nations, Department of Economics and Social Affairs, World Population Prospects: 2012 Revision, June 2013.
Important Risks Related to this Article
Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments.