Posted inAT+

Fed tightening is bad news for developing Asia

It’s beginning to feel like 1994 all over again for developing Asia as surging inflation forces the Federal Reserve into a more aggressive tightening cycle.

Since 2013, the region’s economies have suffered PTSD from the “taper tantrum.” That trauma stemmed from the mere specter of Fed officials trimming bond purchases. Markets from Jakarta to Mumbai quaked at the prospect of less US liquidity.

But this year’s shock from Washington could be of another magnitude, perhaps even worse than 1994. That year, the Fed embarked on a doubling of short-term rates in just 12 months. The resulting chaos nudged Mexico into crisis, helped bankrupt Orange County, California, and led to the closure of securities giant Kidder, Peabody & Co.

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