Hawkish shifts in the US Federal Reserve’s monetary policy have often led to heightened financial and economic stress in emerging economies. In the early 1990s, the Fed raised interest rates preemptively to curb inflation, precipitating the 1994 Mexican “tequila” crisis. In 2013, the Fed signalled its intention to tighten monetary policy, resulting in the major emerging-markets sell-off known as the “taper tantrum”.
Given the region’s history, one might expect that policymakers in the Asean+3 countries — the 10 members of the Association of Southeast Asian Nations, together with China, Japan and South Korea — would be particularly anxious about the Fed’s increasing hawkishness. Indeed, the Fed’s recent efforts to curb high and persistent inflation have prompted fears of a regional financial crisis, similar to the Asian financial crisis in 1997.
But the Fed’s actions will not have as much impact on the region as they did in the late 1990s. Today, the Asean+3 economies are stronger and more durable, making a 1997-style financial meltdown improbable.
