Fed to communicate clearly to avoid market disruptions: Powell

Federal Reserve Chairman Jerome Powell attends IMFC plenary during the IMF/World Bank spring meeting in Washington, U.S., April 21, 2018. REUTERS/Yuri Gripas

ZURICH (Reuters) - The Federal Reserve’s interest rate hikes may not pose as big a risk for global financial markets and emerging market economies as many have thought, the U.S. central bank’s chairman said on Tuesday.

Still, Jerome Powell said global risk sentiment bears watching as the Fed carries out its well-telegraphed gradual policy-rate increases.

“I do not dismiss the prospective risks emanating from global policy normalization,” he said in remarks prepared for delivery to a policy conference sponsored by the International Monetary Fund and the Swiss National Bank.

Though Fed interest-rate decisions have had only limited impact on capital flows into and out of emerging markets in recent years, he said, there may be some investors and institutions that are unprepared for the policy tightening to come.

To foster global financial stability and growth as the Fed raises rates, he said, the Fed will continue to help build resilience in the financial system and “will communicate our policy strategy as clearly and transparently as possible to help align expectations and avoid market disruptions.”

Powell did not mention the 2013 taper tantrum, when then Fed Chair Ben Bernanke suggested the central bank would soon slow its bond-buying program, taking investors by surprise and triggering a global financial market swoon.

Reporting by Ann Saphir; editing by Diane Craft