SYDNEY–The market turmoil sparked by the Federal Reserve's steps toward removing the US economy from life support is expected to be a top agenda item when finance chiefs from the world's biggest economies meet in Sydney this weekend.
The Group of 20 finance ministers and central bankers meeting is a precursor to the main G-20 summit that will be held in the Australian city of Brisbane in November. The meeting's host, Australian Treasurer Joe Hockey, said the Federal Reserve's decision to begin scaling back its stimulus will be a key part of discussions, along with reinvigorating global growth.
In December, the US central bank said it would start reducing its monthly Treasury and mortgage bond purchases, intended to keep interest rates low and support economic recovery in the aftermath of the global recession. Investors responded by pulling out of emerging markets and funneling their money to the US in hopes of higher returns, which contributed to sharp falls in stock markets and the currencies of some developing countries.
The G-20, which represents around 85 per cent of the global economy, is made up of both wealthy nations and emerging economies from the United States to Saudi Arabia and China.In a paper prepared for this weekend's meeting, the International Monetary Fund warned advanced economies to avoid prematurely rolling back their stimulus programmes. But Hockey has defended the Fed's decision, saying the US has a responsibility to do what is best for itself.
"There is no doubt that the Fed needs to be aware of these international implications in detail, and be mindful of them," the Australian treasurer said during an Institute of International Finance conference in Sydney. "But ultimately, the Federal Reserve has to operate in a manner that is consistent with its domestic mandate."
Federal Reserve Board Chair Janet Yellen, who was sworn in February 3 to succeed Ben Bernanke, will travel to Sydney to attend her first G-20 meeting as head of the US central bank. In her first public comments since taking the job, she said the Fed would take "further measured steps" to reduce its bond buying if the US economy continues to improve.
The key focus of the meeting, however, will be exploring ways to restore global growth amid indications that the world's largest economies are once again slowing. Hockey, who says boosting private investment in infrastructure would help stimulate growth, wants G-20 leaders to commit to a global growth target higher than the International Monetary Fund's forecast, which is 3.7 per cent this year.
AP