By Nelson D Schwartz
Lots of buzz concerning the impact of higher interest rates in the United States. A major trading partner creating shock waves in the global economy. Stock market volatility spreading around the world.
Sound familiar? It certainly does to Federal Reserve policymakers, who hesitated this week about lifting their key interest rate lever from close to zero because of worries about the ripple effects of a shaky Chinese economy and uneasy global financial markets. What they remember is a situation that played out more than 20 years ago, in 1994 and early 1995.
Th country in question then was Mexico, as rising rates in the United States put pressure on an emerging market economy already suffering from a weakening currency and too much debt.
Ultimately, Mexico had to be bailed out by the United States and the International Monetary Fund. And something like the so-called Tequila Crisis and other episodes of global economic turmoil in the 1990s are exactly what officials hope to avoid — or at least lessen —
Ultimately, Mexico had to be bailed out by the United States and the International Monetary Fund. And something like the so-called Tequila Crisis and other episodes of global economic turmoil in the 1990s are exactly what officials hope to avoid — or at least lessen —
When Fed policymakers do eventually decide to move, they should emphasize that it is not the beginning of a relentless new tightening phase, said Robert E. Rubin, President Bill Clinton's Treasury secretary from 1995-99.
At the time of the initial rate increase, he said, Fed officials should make clear that future increases will only come if the data suggests the economy continues to strengthen and that higher interest rates and a tighter monetary policy are required to head off .
At the time of the initial rate increase, he said, Fed officials should make clear that future increases will only come if the data suggests the economy continues to strengthen and that higher interest rates and a tighter monetary policy are required to head off .
At the time of the initial rate increase, he said, Fed officials should make clear that future increases will only come if the data suggests the economy continues to strengthen and that higher interest rates and a tighter monetary policy are required to head off the clear risk of inflation.
