Fed in focus after emerging market mauling

Reuters ^ | 1/26/2014 | Philip Blenkinsop

[EBH]

BRUSSELS (Reuters) - The U.S. Federal Reserve will take center stage in the week ahead with a widely expected cut to its bond-buying stimulus, responding to an improving U.S. economy but also helping fuel a dramatic emerging market sell-off.

Argentina, Turkey and Ukraine felt the full force last week of a global flight from developing world assets as investors grew concerned about slower growth in China and U.S. monetary tightening, as well as the countries' own problems.

Fed policymakers are expected to confirm the tightening trend during their Jan 28-29 meeting, notably also for being Ben Bernanke's last as chairman before vice chair Janet Yellen takes charge.

They are almost certain to make a second $10 billion cut to the bank's monthly purchase of Treasuries and mortgage-backed securities, from $75 billion now to $65 billion.

They are also likely to leave intact their delicately worded promise to keep interest rates low, although sharply falling unemployment has left some to doubt how long into the future that promise will hold.

"The problem is that investors no longer believe the Fed when we hear that proper rate tightening would happen much later in the future," wrote Benoit Anne of Societe Generale.

"Either the Fed will manage to re-establish some credibility on that front, and global emerging markets will probably find some respite in the future, or we are going into a full-blown meltdown," he continued.

Some would argue the meltdown has already begun, with intervention proving ineffective in stemming an exit from emerging equity funds that has totaled almost $4 billion so far this year.

Argentina's peso suffered its largest daily loss last Thursday since the country's 2002 financial crisis

[EBH]

"Either the Fed will manage to re-establish some credibility on that front, and global emerging markets will probably find some respite in the future, or we are going into a full-blown meltdown," he continued.

[VRWC For Truth]

Plunge protection is over gents.

[Zeneta]

[palmer]

Unbelievable. The guy is saying that since his penny stock country is addicted to Fed-sponsored carry trade, the Fed must continue inflating otherwise the Fed "lose credibility" on its ability continue inflating the carry trade.

Dude: it's a bubble.

[Bshaw]

Yet it’s the Republican, “War Against Women” we hear so much about. Let us watch the current female, Janet Yellen, be crucified as this ball of yarn untangles under her watch.

The men who foisted this hell upon us will walk away scott-free as she twists in the wind with this noose of an economic implosion around her neck.