The recent drop in emerging markets and U.S. stocks has not hurt the growing momentum of the U.S. economy or its labor market, a top Federal Reserve official said on Friday, adding the Fed should not focus too much on "short-term developments."
San Francisco Fed President John Williams, speaking on Fox Business television, said the U.S. central bank is nonetheless carefully monitoring emerging-market turmoil and discussed it at a policy meeting this week.
"The movements in the stock market, the movements in emerging markets, clearly have feedback effects on the U.S. economy and we take those into consideration in thinking about the appropriate stance of policy," said Williams, a centrist at the Fed who does not have a vote on policy this year.
"So far I don't see anything that's happened in the last month around markets as fundamentally shifting an improving outlook for the U.S. economy and improving labor markets."
Financial markets in India, Turkey, Argentina and elsewhere have boomed as the Fed's efforts to bolster economic growth at home - including bond-buying and ultra-low interest rates - encouraged investors to seek higher returns in emerging economies.
As the Fed began to talk of unwinding its policy last year, the so-called "hot money" began to flow back out, a trend that ramped up again last week, undercutting U.S. stocks too .SPX, on signs that China's economy is slowing.
The Fed's decision on Wednesday to trim its monthly asset-purchase program by another $10 billion, bringing the total purchases to $65 billion per month, brought on another decline in currencies and stocks in emerging markets .MSCIEF.
"We shouldn't focus too much on the short-term developments in markets. That said, we're watching them carefully," Williams said, adding he hopes that clear communication about the Fed's policy plans helps to ease uncertainty in global financial markets.
But he said: "The hot money flows, which I do recognize as an important development, are the result of a number of factors. I wouldn't say it's just because of Fed policy."
(Reporting by Jonathan Spicer; Editing by James Dalgleish)