Kenneth Rogoff Warns of ‘Accident Waiting to Happen’ in Emerging Markets

(Bloomberg) -- Inflation has Kenneth Rogoff worrying that quicker Federal Reserve interest-rate hikes could spell trouble for emerging markets. 

“Developing economies are just an accident waiting to happen,” the Harvard University economics professor said on Bloomberg TV on Wednesday, before the Fed’s policy decision. “There are already a lot of problems in what we call the frontier emerging markets.”

A full percentage-point of Fed rate increases next year could shut some countries out of markets, further straining already vulnerable fiscal situations. He pointed to Egypt, Pakistan and Ghana as nations already battling large debt obligations, narrower market access and, in some cases, double-digit inflation.

In a major policy pivot, the Fed ramped up its battle against inflation by accelerating the wind-down of asset purchases and signaling -- through its so-called dot-plot projections -- three quarter-point hikes in the benchmark federal funds rate next year. Back in September, its last forecast showed officials were evenly split on the need for any rate increase at all in 2022.

Emerging markets are “very sensitive to the hiking-more-quickly scenario,” Rogoff said. “Many, many countries that have access right now, suddenly wouldn’t. That would really be catastrophic.”

“If we’re talking about inflation, there is time to act,” he said. “That doesn’t mean that the longer you wait, it doesn’t get longer and more unpleasant to unwind it.”

Earlier this year, he warned in a paper co-authored with World Bank chief economist Carmen Reinhart that emerging markets faced more difficult choices than advanced economies in dealing with debt burdens that exploded during the Covid-19 pandemic.

Watch the full interview on Bloomberg TV.

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