A decision by the Federal Reserve to raise interest rates next week would cause “panic and turmoil” in emerging markets, according to the chief economist for the World Bank.
In an interview with the Financial Times, Kaushik Basu said that the Fed raising rates wouldn’t cause a major crisis, but nevertheless called on the U.S. central bank to delay such a move to protect smaller economies.
“The world economy is looking so troubled that if the U.S. goes in for a very quick move in the middle of this, I feel it is going to affect countries quite badly,” he said.
Basu’s statement was the latest entreaty by an official at an international organization for the Fed to delay tightening monetary policy.
Fed Chairwoman Janet Yellen and other Fed officials will discuss the possibility of raising rates at their two-day monetary policy meeting in Washington Sept. 16-17. The Fed has kept short-term interest rates near zero since 2008 in an effort to boost the U.S. economy.
With the unemployment rate as low as 5.1 percent in August, the outlook for the U.S. is now considerably brighter than it is in many countries overseas, especially in some of the smaller countries that the World Bank is tasked with aiding.
The International Monetary Fund also has called upon the Fed to postpone a first rate increase until next year, citing slow growth in the rest of the world.
For their part, Yellen and other Fed officials have explained that they are limited in their ability to help other countries, since they are bound by their congressional mandate to target growth in the U.S. alone.
Some central bankers in emerging market economies, furthermore, have told Fed officials that their countries are prepared for the Fed to start tightening. Emerging markets are thought to be especially at risk if the Fed tightens monetary policy because their dollar-denominated debts would become more difficult to pay off.
Private-sector economists previously expected the Fed to raise rates at the September meeting, but they have tempered their expectations following recent volatility in global stock markets and signs of possible slowing growth in China.
