Global Sell-off Shows Fed Reach Beyond the US

The activities of world’s central banks are intertwined in complex ways that are more apparent. The Federal Reserve, the US central bank, reviews international variables before setting policy and recognizes that its actions affect growth and inflation in foreign economies. Overseeing the largest economy while actively intervening on economic matters, the Federal Reserve is in the position that any announcement from its board of directors instantly moves global markets. Debt problems and rising interest rates in Europe and China rattle markets, too, but reactions to US economic news are so rapid, so over-weighted, that some analysts regard the Federal Reserve as the most influential central bank. Still, investors don’t always trust its assessments. The latest example is a global sell-off in stock, pronounced overseas, after Chairman Ben Bernanke suggested that US economic recovery is underway and that the Federal Reserve may soon ease bond buying and stimulus spending. Low interest rates had encouraged borrowing for foreign investment in emerging markets, and those investors look to pull back. – YaleGlobal