The Fed and the Emerging Markets Peril

U.S. officials have taken to the airwaves over the last few days to absolve the Federal Reserve of blame for the recent turmoil in emerging markets, a response to some of the debate that arose from the Federal Reserve Bank of Kansas City’s annual meeting last week in Jackson Hole, Wyoming.

The most common argument -- that the Fed’s dual mandate of price stability and maximum employment is limited by law to domestic objectives -- is correct. But that line of reasoning is too narrow given the feedback loops between emerging markets, corporate earnings and the U.S. economy.