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Threats to growth in emerging markets

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Tightening American monetary policy, slowing China and the Omicron variant

Start with American policy. Markets knocked for a loop by Omicron sagged further on November 30th, after Jerome Powell, the chairman of the Federal Reserve, suggested that the central bank might accelerate its plan to taper its asset purchases. Thanks to the critical role of the dollar and Treasury bonds in the global financial system, a more hawkish Fed is often associated with declining global risk appetite. Capital flows towards emerging markets tend to ebb; the dollar strengthens, which, because of the greenback’s role in invoicing, reduces trade flows.