OUTSIDE the Federal Reserve’s imposing building in Washington, DC, water cascades from two fountains shaped like chalices. Inside, the Fed’s decision-making generates equally prodigious spillovers, channelling the flow of capital around the world. The consequences, especially for emerging economies, can be monumental but they are rarely elegant.

Until last week many emerging economies had been bracing themselves for an imminent rise in the Fed’s benchmark interest rate, perhaps as early as this month. Higher rates could draw more money into America from emerging markets, weakening their currencies and raising their bond yields. Even the expectation of tighter money can be enough to cause trouble. In such circumstances, central banks far from the Fed often feel compelled to raise rates too, even if economic conditions at home do not entirely warrant it. In 2014 Arvind Subramanian, now the chief economic adviser to India’s government, complained of “dollar imperialism”.

On June 3rd, however, the emperor granted a reprieve. Surprisingly bad jobs figures released that day ended all talk of a Fed rate hike this month...Continue reading