Fed poised to increase interest rates regardless of emerging-market woes

Bloomberg

Emerging markets struggling with higher US interest rates are likely to get little sympathy from the Federal Reserve.
Currencies of such nations have been hammered in a spreading selloff amid worries that their economies won’t cope with higher US borrowing costs. That’s prompted central bankers in India and Indonesia to raise interest rates and urge Fed caution.
There are few signs such concerns will steer the Fed away from its course for at least two and possibly three more rate increases this year, including a move at its policy meeting next week.
Chairman Jerome Powell explicitly pushed back against criticism early last month in Zurich, saying the role of US monetary policy on foreign domestic financial conditions was “often exaggerated.” His colleague, Governor Lael Brainard, mentioned emerging markets in a May 31 speech, but spent far more time discussing the upside risks posed by fiscal stimulus.
“I don’t think they can change policy based on fear,” said Bricklin Dwyer, senior economist at BNP Paribas in New York. Emerging-market turmoil “is noise right now, justifiable noise. But does it shift the outlook for the U.S? The answer is, not yet.”
The US economy is powering ahead, adding over a million jobs in the first five months of 2018. Inflation is at the central bank’s 2 percent target, and the Atlanta Fed’s gross domestic product tracking model suggests the economy grew a strong 4.5 percent in the second quarter.

‘HUGE TAILWIND’
Even if exports are tempered by foreign economic woes, trade fights, and a somewhat stronger dollar, some $1.5 trillion in fiscal stimulus and a $300 billion increase in federal spending are supporting domestic US demand with “a huge tailwind,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York.
The Fed is tasked with achieving stable prices and full employment. At 3.8 percent in May, unemployment is already well below estimates of
full employment and recent forecasts show officials expect a modest overshoot of their
2 percent inflation target.